Yahoo Finance Royal Bank of Scotland shares jump as dividend hopes rise
Hopes that Royal Bank of Scotland will reach a key milestone in its recovery from the financial crisis and restart dividend payments as soon as next year sent shares in the taxpayer-owned lender to their highest level in 12 months.
Investors sent RBS stock surging 6.9pc to 259p after the bank revealed on Friday evening that the Government had provisionally agreed with Brussels an alternative plan to a forced sale of its Williams & Glyn (W&G) business. It is a boost for RBS, which remains 72pc owned by the Government, with analysts at Deutsche Bank saying it is now a “realistic possibility” that the lender will declare a dividend next February in respect of its 2017 results.
It would be RBS’s first shareholder payout since it was bailed-out in 2008 and would mark a significant achievement for boss Ross McEwan, who is bracing to deliver the bank’s ninth consecutive annual loss on Friday.
Disposing of the 306-branch W&G network was demanded by the European Commission as a condition of RBS’s £45.5bn state rescue during the credit crunch. But offloading the assets has proved impossible to achieve because of the bank’s antiquated IT system and RBS has spent some £1.8bn trying in vain to meet its state aid obligation.
Now, as an alternative, the Treasury has proposed a package of measures that would see RBS boost competition in banking, including by setting up a fund to help challenger banks grow.
If the plan - which would cost RBS a further £750m but would mean it could scrap a W&G sale - gets the final green-light from the EU, it will remove a major obstacle to the resumption of dividends.
Mr McEwan has said that the before the bank can restart payouts, it must fulfill its state obligations to Brussels, settle claims made by the US Department of Justice (DoJ) that it mis-sold toxic residential mortgage-backed securities (RMBS) that contributed to the crisis, and pass the Bank of England’s stress tests, which it failed last year.
“With [the] W&G exit now no longer needed, this removes arguably the most uncertain of the hurdles for capital return,” said the Deutsche Bank analysts, adding that it was an “important turning point for RBS”.
It comes as Mr McEwan finally starts to make progress with the DoJ: although the bank is yet to begin negotiations with US authorities over RMBS, it took a £3.1bn provision last month in preparation for a final settlement.
Together with the W&G plan, it means that RBS’s prospects have brightened considerably in the space of just a few weeks.
The timing of the developments is fortuitous for Mr McEwan, who had recently been dogged by speculation he could resign. On Friday, RBS is expected to reveal that net losses widened last year to about £6.8bn, meaning its total losses since its bailout are now approaching £60bn.
The heavy losses will act as a reminder that the bank still has some way to go before it can return to profit and the Government can start slashing its stake in the company.
