Yahoo Finance RBS reports £7bn loss and says it will not make profit until 2018
Royal Bank of Scotland has reported a new £7bn loss – its ninth consecutive year deep in the red – which has taken its total losses since the 2008 financial crash to more than £58bn.
The 73% taxpayer-owned bank said it would not return to profit until 2018 and announced a £2bn cost-cutting plan, which will mean more job losses and branch closures to put the bank back in the black.
Ross McEwan, the chief executive who was paid £3.5m last year, said: “The bottom line loss we have reportedis, of course, disappointing but given the scale of the legacy issues we worked through in 2016, it should not come as a surprise.”
The 2016 loss was caused by £10bn of one-off items, including £5.9bn set aside for looming fines and legal costs, largely related to a forthcoming penalty from the US Department of Justice (DoJ) for mis-selling toxic bonds in the run-up to the financial crisis.
McEwan pointed the finger of blame for the continuing losses at the regime of former RBS boss Fred Goodwin, who was in charge of the bank when it needed a taxpayer bailout: “These costs are a stark reminder of what happens to a bank when things go wrong and you lose focus on the customer, as this bank did before the financial crisis.”
He added: “This is a bank that has been on a remarkable journey. We still have further to go. But the next three years will not be the same as the past three.”
Once one of the biggest banks in the world, RBS has embarked on a dramatic downsizing since the crisis. Staff numbers have fallen from 170,000 to 80,000 and McEwan conceded that his latest plan to cut cost – including £750m in 2017 – would lead to cuts in branches and jobs.
While refusing to disclose the scale of redundancies, McEwan admitted: “There will be job losses that we have to go through.”
Union officials urged RBS to introduce a moratorium on branch closures. The bank has 1,200 RBS and NatWest branches, not including 300 branches that the EU had demanded it should sell in return for its state bailout.
Rob MacGregor, the Unite union’s national officer, said: “Its ruthless approach to pay for the mistakes of the past jeopardises customer service and risks leaving communities and businesses reliant on their local bank branch high and dry.”
McEwan, who took over when Stephen Hester left in 2013, said he intended to stay at RBS until the bank was back in the black: “We’ve done all the hard work in the last three and half years. I can sense this bank is on the turn.”
His £3.5m pay was the same as 2015 while bonuses for staff fell 8% to £343m. A total of 87 RBS bankers received more than €1m (£850,000). However, the bank said the average salary across the organisation was £32,620. The bank also handed £496,000 to its previous boss Hester, three years after he quit the bank, as a final payment.
Chairman Sir Howard Davies said McEwan and current bank staff should not be penalised for “sins of the past”, but the Robin Hood Tax Campaign, which campaigns for a tax on banks to tackle poverty and climate change, described the payments as an insult.
The two main issues hanging over RBS is settlement with the DoJ and the sale of 300 branches – known as Williams & Glyn. The Treasury hopes that sale can now be avoided by other measures to inject competition into the small business market, although these may not be approved by Brussels until later this year.
Until these problems are resolved, the chancellor, Philip Hammond, has said he will not be able sell off RBS shares, which fell 4% to 246p on news of the latest loss. That is less than half the 502p average price that taxpayers paid for them. “While progress is being made, there is still work to do and RBS must continue to deal with its legacy issues,” a Treasury spokesperson said.
The annual report lists a range of legal matters, including a case by shareholders over the 2008 rights issue. RBS intends to fight the case which McEwan said “ could go on for years”. RBS has settled with four other shareholder groups and set aside £800m. McEwan was critical of former directors attempting to join the proceedings.
Among other items weighing on the bank are compensation for the sale of interest-rate hedging products to small businesses, investigations related to terrorist financing in the US and providing redress to small businesses badly treated by its now-defunct global restructuring group, GRG. RBS has set aside £400m for GRG.
“RBS is showing a bit of top-line income growth in its core UK banking operations,” said Sandy Chen at Cenkos, an independent specialist securities firm.
