Royal Bank of Scotland has reported three consecutive quarters of profits but says it is on track to report its 10th consecutive full-year loss as a result of a US penalty over toxic bond mis-selling that dates back to before the banking crisis.
The yet-to-be-quantified settlement with the US Department of Justice over the way mortgage bonds were packaged and sold to investors in the run-up to 2008 means that the 71% UK taxpayer-owned bank is braced for a multibillion-pound bill in the last three months of the financial year.
Ross McEwan, the RBS chief executive, said this meant it was unlikely that the Edinburgh-based bank, which received a £45bn taxpayer bailout, would make a full-year profit.
McEwan – a New Zealander who has run the bank since 2013 – said the bank was reporting “good results” with £1.3bn of profits for the first nine months of the year. In the same period a year ago it recorded a £2.5bn loss.
“We’ve almost got ourselves through our legacy cleanup,” said McEwan. The results justified his strategy to focus RBS on the UK and pull back from investment banking, he added.
“We have grown income, reduced costs, made better use of our capital and continued to make progress on our legacy conduct issues. Our core bank continues to generate strong profits and we remain on track to hit our financial targets,” McEwan said.
The bank has been awaiting a settlement with the DoJ for years and McEwan said he was optimistic of achieving one this year. Last December the DoJ extracted $12.5bn (£9.5bn) settlements from Deutsche Bank and Credit Suisse over residential mortgage-backed securities (RMBS) sold before 2008.
On Thursday, the DoJ fined RBS £33m over allegations it lied to clients over prices and commissions paid for RMBS. It said the bank “encouraged fraudulent trading practices” and prevented “victims and honest RBS employees from discovering and exposing the scheme”.
The RMBS settlement – which could reach £9bn – could remove uncertainty and give the British government an opportunity to start selling off its shares, McEwan said.
The shares rose almost 3% to 288p, still way below the average 502p per share the taxpayer paid during the 2008 bailout.
Gary Greenwood, banks analyst at Shore Capital, said that once the settlement was reached “it should pave the way for the group to return to statutory profitability (hopefully during 2018) and, ultimately, recommence dividend payments and capital returns to shareholders”.
With the Bank of England expected to raise interest rates next week for the first time since July 2007, McEwan said it would be good news for savers and that 88% of its customers were on fixed-rate mortgages.
McEwan has previously said he is cautious about the consumer credit market – credit cards, motor finance and personal loans – which is growing at 10% year at a time when incomes are growing at 2%. Last month, he said he was postponing a fresh push into the credit card market.
RBS has been under fire for its treatment of small business customers and the Financial Conduct Authority said earlier this week it was looking at whether it could take action against the bank over customers in its now defunct global restructuring group (GRG).
It has also faced fresh controversy after Jayne-Anne Gadhia, the chief executive of Virgin Money, recalled an incident when she worked at RBS where a female colleague believed she was expected to sleep with her manager. Gadhia quit RBS in 2006. McEwan said it was “appalling” and “that’s why we’re changing the culture”.
This article was written by Jill Treanor, for theguardian.com on Friday 27th October 2017 10.32 Europe/Londonguardian.co.uk © Guardian News and Media Limited 2010