RBS profit warning on foreign exchange inquiry and Scottish independence

Royal Bank of Scotland has warned that the ongoing investigation into potential manipulation of the foreign exchange markets could hit profits.

In 17 pages of legal disclosures attached to its first-half results, the 81% taxpayer-owned bank revealed the cost of fines or settlements that could come with the wide-ranging inquiry could be "material".

The bank issued its results last Friday – a week earlier than expected – after an improvement in bad debts drove profits to their highest levels since the bailout in 2008.

As the Edinburgh-based bank confirmed the rise in profits to £2.6bn, it published information about its performance in the first half of the year along with details about the risks and litigation it could face. But it did not take any additional provisions for the potential cost.

RBS outlined potential risks it faces from litigation – ranging from disclosures it made during a cash call before its 2008 bailout to the sale of mortgage-backed securities before the crisis and the ongoing investigation by the Financial Conduct Authority into the alleged treatment of its small business customers.

It also reiterated the potential risks caused by the Scottish independence vote on September 18. Warning of the risks to its credit rating and the backdrop under which it may operate, it added: "Were Scotland to become independent, it may also affect Scotland's status in the EU. The occurrence of any of the impacts above could significantly impact the group's costs and would have a material adverse effect on the group's business, financial condition, results of operations and prospects."

The bank had previously admitted that it was co-operating with regulators, which have turned their focus on foreign exchange markets following the rigging of Libor, for which RBS was fined £390m in February 2013.

In its latest update, RBS said: "It is not possible to estimate reliably what effect the outcome of these investigations, any regulatory findings and any related developments may have on the group, including the timing and amount of fines or settlements, which may be material."

The formal update – which acknowledges the announcement by the Serious Fraud Office last month that it was investigating the market – comes after the RBS boss Ross McEwan told the radio station LBC last month that the rigging of currencies could be as big as Libor.

"Unfortunately, I have the feeling that this is a Libor case again," McEwan said.

When RBS published its results last week, McEwan warned: "Let me sound a note of caution. We are actively managing down a slate of significant legacy issues. This includes significant conduct and litigation issues that will likely hit our profits going forward."

The bank's shares slipped just over 1% in early trading to 350p, remaining below the 500p at which the taxpayer breaks even on its stake.

Powered by Guardian.co.ukThis article was written by Jill Treanor, for theguardian.com on Friday 1st August 2014 09.48 Europe/London

guardian.co.uk © Guardian News and Media Limited 2010


JefferiesAnd the Best Place to Work in the global financial markets 2017 is...

Register for Financial Markets News Alerts