RBS delays passing on Bank of England interest rate cut to borrowers

Mark Carney

Royal Bank of Scotland is yet to decide whether to pass on the Bank of England’s cut in interest rates to its borrowers in a move that risks a row with its governor, Mark Carney.

As the 73%-taxpayer-owned bank slumped to a £2bn half-year loss, the bank admitted it was still reviewing the implications of the historic rate cut to 0.25%, which is expected to impede its ability to generate profits as quickly as hoped and force the bank to cut costs.

Carney told bankers on Thursday when he unveiled a package of measures to tackle a post-Brexit-vote downturn in the economy that they had no excuse not to pass on the cut from 0.5%.

Ross McEwan, the RBS chief executive, said rate cuts “hit savers every time” but the implications for home owners on its 4% standard variable mortgage rate (SVR) were still being reviewed. The majority of its borrowers are on fixed rates and will not be affected.

The bank, which also owns NatWest, is now on course for its ninth consecutive year of losses, which have reached £52bn since it was bailed out in 2008.

The results – which involve a string of legal issues, including payment protection insurance mis-selling compensation – contained a warning about the implications of the 23 June referendum on the bank’s ability to meet its targets to cut costs and generate returns for shareholders.

RBS has abandoned already-stalled plans for a stock market flotation of the 300 Williams & Glyn branches it must sell to comply with EU rules associated with its £45bn taxpayer bailout. After spending £1.5bn on trying to separate the branches, the bank will now seek a trade sale; Santander is thought to have tabled an offer for the operation, which employs 5,500.

The £2bn loss compares with a £179m loss a year ago and is in part caused by a decision to repay £1.1bn to the government. There were £1.3bn of new charges, including more than £400m for PPI, and also the costs of claims being brought by shareholders in relation to the bank’s 2008 cash call, and an investigation into tracker mortgages at its Ulster Bank.

The bank said a mediation attempt with the shareholders in relation to the cash call at 200p a share in 2008, before its bailout, had taken place on 26 and 27 July and had not reached a conclusion.

A long-running investigation in the US involving the way it sold mortgage bonds in the run-up to the 2008 crisis – which analysts estimate could cost £8bn – is ongoing, although settlement talks are under way with the state of Connecticut. Cases with the Department of Justice remain outstanding.

A year ago, the government used the half-year results to sell off its first tranche of shares at 330p a share, representing a £1bn loss. The shares fell 4% to 184p as the results were published, well below the 502p average price per share at which taxpayers bought the stake.

The bank warned that the EU referendum result could knock its business, which is being refocused on the UK and Ireland and scaled back from the 50 or so countries where it had operations at the time of its rescue, and make it harder to cut costs.

“The outcome of the UK’s EU referendum has created considerable uncertainty in our core market and we continue to assess all its implications,” RBS said. “In the current low rate and low-growth environment, achieving our longer-term cost-income ratio and return targets by 2019 is likely to be more challenging.”

McEwan told analysts that the lower interest rates would need the £6.5bn cost-base of the bank to be cut. The executive team, he said, was working on a plan that would be announced next year “for a lower cost base for this organisation”.

However, McEwan insisted that the bank – now halfway through his five-year plan – was making good progress and that it was “open for businesses”.

The progress made in “drawing a line under many of the legacy issues” was “important because it means we are well positioned to support our customers through the challenges that an economic slowdown poses for the country”.

“We have been the fastest-growing large UK bank – with net lending into the UK economy higher than any other bank in the first half of the year. We are open for business, ready to lend, and ready to play our part in this new chapter for the country,” he said.

RBS’s finance director, Ewen Stevenson, focused on the £1bn of profits being generated at its core business, which would eventually allow the bank to pay dividends to shareholders. The first payments, though, are not expected until 2018 at the earliest, which is expected to make any further sale of the government’s stake more difficult.

Powered by Guardian.co.ukThis article was written by Jill Treanor, for theguardian.com on Friday 5th August 2016 07.53 Europe/Londonguardian.co.uk © Guardian News and Media Limited 2010

 

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