View the article online at http://citywire.co.uk/money/article/a885023
RBS plunges on £2bn loss and delayed dividends
Royal Bank of Scotland tumbles as bank underlines contrast with Lloyds by postponing dividends and unveiling eighth straight annual loss.
Shares in Royal Bank of Scotland (RBS) have plunged after the bank unveiled a £2 billion loss for 2015, its eight annual loss in a row.
RBS shares tumbled 9.4% to 221p after the bank was hit by £3.6 billion of litigation costs and a £2.9 million bill for restructuring that sent it into the red yet again.
While the £2 billion loss was an improvement on last year's £3.5 billion, it still fell short of analyst expectations of a £1.8 billion loss.
'Markets had expected a 2016 payment, but RBS now says this won't happen before it gets itself clear of the worst of the conduct charges for mis-selling mortgage securities in the US,' said Laith Khalaf, senior analyst at Hargreaves Lansdown.
Gary Greenwood, analyst at Shore Capital, said that while profits were slightly weaker than expected, the postponing of dividends was the biggest blow.
'This is clearly disappointing, given that the balance sheet now appears to be in relatively good shape with the group reporting best-in-class capital ratios at the end of 2015, implying a capital surplus of around £6 billion,' he said, adding that capital returns were 'the key driver of the investment case for RBS'.
Khalaf added that the contrast between the RBS and Lloyds results 'demonstrate just how much daylight has opened up between the banks between the financial crisis'. 'RBS is heading in the same direction as Lloyds and will probably get there, but it's going to be a long haul,' he added.
RBS's woes also mean further sales of the government's stake in the bank, acquired as it was bailed out at the height of the financial crisis, are unlikely to be imminent.
The taxpayer still owns nearly three-quarters of the bank, while in the case of Lloyds, that stake has been reduced to around 10%.
The government postponed its planned sale of some of its remaining stake in Lloyds to private investors as the market turmoil sent shares in the bank below the price the Treasury paid for them, but in the case of RBS, the break-even point looks even further away.
Chancellor George Osborne faced criticism last summer when he sold off a 5.4% stake in RBS at 330p a share, representing a loss of around a third on the 500p price the government paid.
With shares now trading at less than half the price the government paid, 'it looks like it's going to take a long time before that shareholding leaves the Treasury's books,' said Khalaf.
However, the government, unlike other shareholders, can at least take solace in the fact that it will be receiving dividends, to the tune of £1.2 billion in the first half of next year.
'That's because as a condition of the bailout, the government insisted that £1.5 billion be paid back to taxpayers before the bank could pay dividends to ordinary shareholders,' said Khalaf.
'This payment will settle the bill, and marks a small step in the bank resuming a normal relationship with private shareholders.'
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by Gavin Lumsden on Oct 21, 2016 at 17:18