View the article online at http://citywire.co.uk/money/article/a876327
RBS issues profits warning as clean-up continues
Shares in Royal Bank of Scotland drop over 3% as tax-payer owned bank writes off £2.5 billion to cover mis-selling allegations.
Royal Bank of Scotland (RBS) has written off £2.5 billion ($3.6 billion) from its fourth quarter profits to cover US litigation costs, provide more cash for loan insurance mis-selling and account for a reduction in the value of its private bank Coutts.
In a statement the bank, which is 73% owned by taxpayers, said it would record an annual loss after setting aside $2.2 billion for legal cases in the US alleging the bank mis-sold mortgage bonds before the 2008 financial crisis.
The US provision will knock fourth quarter profits by £1.5 billion with a further provision for payment protection insurance mis-selling wiping another £500 million from earnings. Another £498 million goes in an impairment charge on the goodwill valuation of the private bank.
In addition RBS will make a £4.2 billion payment into its pension scheme in response to changes in its accounting policy.
Although the write-offs are designed to enable the government to further reduce its stake in the bank, investors reacted with disappointment. RBS shares dropped 3.8% to 250.6p taking their decline so far this year to more than 16%.
Chief executive Ross McEwan said the hit to profits would enable the bank to deal with its legacy issues and move on. ‘I am determined to put the issues of the past behind us and make sure RBS is a stronger, safer bank. We will now continue to move further and faster in 2016 to clean up the bank and improve our core businesses,' he said.
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