Warning as RBS slumps to £446m loss
Taxpayer-backed Royal Bank of Scotland warned of another tough year as misconduct and restructuring charges totalling more than £1 billion helped it slump to a £446 million loss for the first quarter.
The lender, which is 80% state-owned, went into the red as it set aside hundreds of millions of pounds to settle a US investigation over the foreign exchange (forex) rigging scandal as well as other past misconduct.
Shares were more than 3% down at one stage, knocking more than £700 million off the market value of the lender.
RBS put aside £856 million to cover litigation and conduct charges, including an additional £334 million to cover the forex affair. It has already paid £399 million in penalties to UK and US regulators.
The bank said it was now in "advanced settlement discussions" with the US Department of Justice over its criminal investigation and expects to reach agreement in the second quarter of this year. The UK's Serious Fraud Office is also investigating the scandal.
RBS indicated it expects the DoJ penalty to be less than one billion US dollars (£650 million) though other US authorities are also investigating.
The attributable loss of £446 million for the period compares to the same quarter last year when it reported a profit of £1.2 billion.
It is another blow to taxpayers hoping to recoup some of the £46 billion bail-out which saved the lender from collapse during the financial crisis.
But there was an indication that shareholders could see the return of dividends from next year if the bank meets expectations on shoring up its balance sheet.
Chief executive Ross McEwan said underlying performance was good, with operating profit stripping out one-off charges up 16% to £1.63 billion.
But he said: "There are still many conduct and litigation hurdles looming on the horizon. We look forward to the day we can focus entirely on the future rather than dealing with legacy issues."
RBS has been shrinking its investment bank, pulling out of many countries where it operates, as the group seeks to focus on its core UK business.
The ongoing disposal of its US bank Citizens, as well as a write-off on the sale of the international arm of private bank Coutts, weighed on first-quarter profits.
There was also a £453 million restructuring charge, mainly related to the write-down in value of US premises. RBS added that it remained committed to cutting costs by £800 million this year.
Mr McEwan said: "It is going to be another tough year as we get through restructuring and conduct charges."
Legacy charges for the quarter included £100 million more for compensating customers mis-sold payment protection insurance (PPI) plus £176 million for litigation as RBS faces US claims over mortgage-backed investments.
There was a £257 million sum for "other customer redress" relating to investments and paid-for accounts.
The bank's UK personal and business arm saw a fall in operating profits compared to last year driven by conduct costs though they improved on an underlying basis with less bad loan impairments and accelerating new mortgage applications.
RBS's shrinking investment bank, also hit by charges, fell to a loss of £741 million.
Ulster Bank saw profits increase by £42 million to £51 million, mainly due to the lack of impairment losses.
Finance director Ewen Stevenson said the group would be "very capital generative" when it reaches a balance sheet target expected to be met next year.
He said it was "important to be seen paying dividends back to our shareholders" though it still faces a £1.2 billion fee to the Treasury to allow it to do so.
Richard Hunter, head of equities at Hargreaves Lansdown stockbrokers, said: "For RBS, the litany of woes remains a drag on profits and prospects. All may not be lost, but the group seems currently to be a glass half-empty."