RBS shares fall 8% as it makes £2bn loss

RBS chief executive Ross McEwan

Royal Bank of Scotland on Friday reported a 2015 loss of £1.98 billion, compared with a loss of £3.47 billion in 2014, as litigation and restructuring costs continued to hurt the company’s finances.

Excluding the litigation, conduct, restructuring and other costs, RBS actually made pre-tax operating profit in 2015 of £4.4 billion compared to £6.1 billion in 2014.

The bank said it still plans to return excess capital to shareholders through dividends or buybacks, subject to board and regulatory approval — but this will now happen later than many investors had hoped.

This was the eighth straight full-year loss for RBS and its shares were trading down about 8% on Friday afternoon.

RBS said litigation and conduct costs increased to £3.56 billion “as further steps were taken to clear legacy obstacles from RBS’s path to normalization.”

The bank said it had “elevated restructuring costs” in 2015 of £2.93 billion, “as the bank’s repositioning accelerated, particularly in its corporate & institutional banking (CIB) business.”

RBS said work continues on the divestment of its Williams & Glyn branch network, but warned this will now not be achieved until after the first quarter of 2017.

“The group remains committed to full divestment by the end of 2017, although it continues to face significant challenges and risks in separating the Williams & Glyn business, some of which may only emerge as various separation process phases are progressed,” said RBS. 

On dividends and share buybacks, RBS said that key milestones would have to be reached before seeking board and regulatory approval for such cash distributions.

These milestones would include “passing the 2016 Bank of England stress test … passing the peak of litigation and conduct costs … and an assured exit of Williams & Glyn.”

RBS said that “given the challenges in separating Williams & Glyn” and the “potentially elongated period” to resolve US litigation claims and regulatory investigations, it now considers it “more likely that capital distributions will resume later than Q1 2017.”

RBS was rescued in a roughly £45 billion state bailout during the global financial crisis and is still 73% owned by the UK government.

RBS chief executive Ross McEwan said: “The UK government’s decision to start disposing of its majority stake in RBS during 2015 was a significant step forward, and underlined the progress we have made over the last two years.

“We have previously said that we are in phase two of our plan, working through as many of the remaining conduct and restructuring issues as we can. 

“This is a tough but important part of our plan and we are determined to get through it as quickly as possible.

We will then move to the third phase as a strong, simple and fair bank that delivers solidly on the needs of its customers and shareholders.”