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RBS posts losses of £153m after banking scandal fines

Published 30/07/2015

Royal Bank of Scotland took another 1.3 billion pound hit for banking scandal fines and warned of more charges to come
Royal Bank of Scotland took another 1.3 billion pound hit for banking scandal fines and warned of more charges to come

Taxpayer-backed Royal Bank of Scotland has dropped back into the red during the first half of its year after taking another £1.3 billion hit for banking scandal fines and warned of more charges to come.

The group posted half-year bottom line losses of £153 million following £1.3 billion in charges after paying more than £400 million to US authorities for its role in the foreign exchange rigging scandal and including compensation for payment protection insurance (PPI).

RBS also took another £1.5 billion in restructuring charges amid an ongoing overhaul at the lender and c hief executive Ross McEwan cautioned of more pain to come as the bank faces further fines for "conduct issues of the past".

He sa id: "I don't like seeing losses and I'll not rest until these charges are behind us."

RBS put cash aside as it braces itself for settlement costs in the US related to mortgage backed securities, which has battered many of its rivals in America over the past couple of years.

The loss marks a reversal of improved trading a year earlier, when it made attributable profits of £1.43 billion.

But Mr McEwan insisted performance in the core bank was continuing to improve, with underlying operating profits for the half-year 2% higher year-on-year at £3.45 billion, with restructuring and conduct charges stripped out.

RBS, which is still 78% owned by the Government, also warned over further job cuts over the next few years as it seeks to go "further and faster" with its restructuring.

The group said job losses would impact its corporate banking business in particular, but did not provide further details on numbers or timing.

Mr McEwan also admitted the IT failure last month that delayed payments and direct debits for thousands of customers over a number of days was "unacceptable".

The group is still working through compensation payments to those affected and talking to regulators, although Mr McEwan said the financial impact to the group was "limited".

He refused to be drawn on the exact timing of any planned sale of shares in the bank by the Treasury, saying only that the plans to begin offloading the government stake was "welcome".

Mr McEwan said the upcoming US mortgage related charges are not likely to hamper any shares sale by the Government, saying the Treasury has acknowledged the bank is in "much better shape".

He said management were working to ensure RBS is a bank "the country can again be really proud of".

Chancellor George Osborne has already said he wants to start selling shares in RBS by the end of the year and it is thought this plan could begin as soon as September.

Shares in RBS rose more than 3% as the bank's second quarter figures suggested an improving picture, with attributable profits for the three months of £293 million - up 27% year-on-year.

Richard Hunter, head of equities at Hargreaves Lansdown Stockbrokers, said: "The bank has swung to an unexpected profit for the quarter, albeit a loss for the half year."

But he said a "a number of clouds remain".

"Not least of which are the costs arising from litigation and conduct fines, the continuing unwelcome government stake and a sharp hike in restructuring costs given the accelerated programme the bank is undertaking," he added.

RBS said it put aside £459 million of extra cash in the second quarter to cover past wrongdoing, including mis-selling of complex interest rate products to small businesses and settlements for US mortgage securities.

The group and its US business Citizens are facing allegations that the group misled investors over the quality of mortgage backed securities sold in America.

Earlier this week, RBS said it would cut its stake in Citizens to around 21% with plans to sell up to 2.6 billion US dollars (£1.7 billion) of stock in the business.

The group also confirmed it was working towards spinning-off its Williams & Glyn arm next summer after resurrecting the brand to offload a chunk of its business to meet European rules on state aid following its bailout at the height of the financial crisis.

Competition authorities are currently looking at the impact on the market of the sale of Williams & Glyn, with their review expected later this year.

RBS said its mortgage business had performed well during the second quarter, with gross new lending up 43% to £5.4 billion.

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