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RBS reports huge loss as it 'cleans up big mess'
Bank pleased with the pace of restructuring, but losses spark share price sell-off.
Royal Bank of Scotland counted the costs of mis-selling scandals and interest rate manipulation on Thursday as it revealed a huge 2012 loss which prompted investors to sell their shares in the troubled 82% taxpayer owned bank.
Announcing pre-tax losses of £5.2 billion, up from £1.8 billion in 2011, RBS (RBS.L) chief Stephen Hester said the bank was ‘still cleaning up the big mess from the past’ though progress was being made and the bank would soon be ready to return to private ownership and reward long-suffering investors with a dividend.
RBS shares have rallied strongly over the past year but fell this morning, down 2.2% to 339p.
Though reporting a tripling of its full-year loss, RBS reported operating profits in line with expectations at £3.5 billion, up from £1.8 billion in 2011. Core operating profit came in at £6.34 billion.
‘RBS is targeting for the most important restructuring actions to be substantially complete by the end of 2013, with the group thereby positioned to be a cleaner and better performing bank in future years,’ said Hester, who replaced Fred Goodwin as CEO in 2008 when the bank was nationalised.
As part of that restructuring the bank confirmed it was moving ahead with a partial flotation of its US division, Citizens.
But Libor manipulation, and the mis-selling of payment protection insurance (PPI) and interest rate hedges for small businesses, cost the bank £1.1 billion. Losses were also exacerbated by accounting charges. Hester said a further, smaller fine for money laundering was also due ‘further down the track’.
While confident on the bank’s progress in restructuring four years into its five-year recovery plan, Hester said RBS still faced tough economic and regulatory challenges.
Hester said in a conference call that he hoped that in 2014 the bank would ‘be in a position to articulate a dividend policy; that dividend policy will be to pay a dividend as soon as we can’. However it depended on government and regulatory policy.
Analysts at Canaccord Genuity warned investors not to expect the resumption of ordinary dividends 'anytime soon'.
'The soon-to-be released Bank of England paper on UK bank capital requirements will hopefully shed more light on this matter and we will review our stance then', they added.
Investec’s Ian Gordon said that investors should offload their shares. ‘Unfortunately, RBS is starting 2013 in a weaker financial position than the market had anticipated, and if our forecasts for an anaemic RoE [return on equity] recovery… prove to be correct, we believe the shares have further to fall’.
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- Royal Bank of Scotland Group PLC (RBS.L)
- HSBC Holdings PLC (HSBA.L)
- Lloyds Banking Group PLC (LLOY.L)
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