RBS drops as it posts ninth consecutive annual loss
By Michele Maatouk
Date: Friday 24 Feb 2017
(ShareCast News) - Shares in Royal Bank of Scotland fell on Friday after it said losses widened in the year to 31 December - its ninth consecutive loss - as it was hit by legacy issues.
RBS reported a loss of £6.96bn for 2016, bigger than the £1.98bn loss it posted the year before. Since its government bailout in 2008, it has racked up £58bn in losses.
The bank was faced with litigation and conduct costs of £5.9bn, which include a £3.1bn provision in relation to the mis-selling of mortgage-backed securities in the US in the run-up to the financial crisis. Meanwhile, it also booked £2.1bn in restructuring costs, compared to £2.9bn the year before.
In addition, the bank put aside a £750m provision to avoid having to sell off branches under the Williams & Glyn brand.
RBS, which is 72% owned by the taxpayer, also said that it expects 2017 will be its final year of substantive legacy clean-up with significant one-off costs. Consequently, it expects to be profitable in 2018.
The bank said it plans to reduce adjusted operating expenses by a further £750m in 2017, in addition to the £3.1bn achieved across 2014 to 2016.
Chief executive Ross McEwan said: "In 2016 RBS made an attributable loss of £7bn, mostly reflecting charges for outstanding litigation and conduct, and costs associated with restructuring of the bank.The financial impact of these issues is a difficult but necessary step in working through the bank's legacy issues.
"These costs are a stark reminder of what happens to a bank when things go wrong and you lose focus on the customer, as this bank did before the financial crisis. The more progress we have made on clearing these past issues, enables us to sharpen our focus on the core go forward bank."
Laith Khalaf, senior analyst at Hargreaves Lansdown, said: "'RBS is still paying for the sins of the past, though the bank is now saying that 2017 is going to be its last year in purgatory, and that shareholders can look forward to a brighter, more profitable year in 2018.
"That may well be the case, there is a decent bank inside RBS struggling to get out, but it's those "one-off items" which pop up with such alarming regularity which keep pushing the bank deep into the red."
Shore Capital pointed out that the shares have risen 67% since reaching a post EU referendum low of 149p, despite failing the most recent Bank of England stress test, as the UK economy has held up better than expected and the group has made some progress in addressing various legacy issues.
"However, there remains work to do before dividend payments can recommence and the UK government can begin selling down its remaining 72% holding in the stock, while the adjusted group return on tangible equity (at 1.6% in FY'16 and 8,6% in Q4'16) continues to languish well below the cost of equity (we assume 10%)."
IG analyst Joshua Mahony said: "If you looked at the RBS share price, you would be forgiven for thinking everything was hunky dory, with the bank's market value rising 66% over the past seven months. However, everything is far from ok, with the firm announcing an unbelievable ninth consecutive year of losses, which trebled to £7bn.
"Unlike Lloyds and Barclays before it, RBS seems unable to shake the shackles of legal action, with the bank setting aside £5.9 billion for fines and legal costs over a mortgage-backed securities case brought by the US Department of Justice. While the British government now owns under 5% of Lloyd's, it looks like it could be a while until we see the government sell any of its 72% holding in RBS, with the current share price over 50% lower than the £5.00 paid by Labour back in 2008 and 2009."
At 0907 GMT, RBS shares were down 1.8% to 245p.
Email this article to a friend
or share it with one of these popular networks:
You are here: news
10 Lower Thames St,
London EC3R 6EN