Royal Bank of Scotland faces a a mounting bill for mis-selling and other conduct issues , its new chairman has warned.
Sir Howard Davies, who became chairman of the 73% taxpayer-owned bank in September, said several obstacles remained before the bank fully recovered from its £45bn bailout by taxpayers in 2008.
Davies listed three main areas that posed a risk. He cited a long-running case in the US about the way it sold mortgage-backed bonds before the financial crisis, the payment protection insurance mis-selling scandal and the ongoing investigation by the City regulator into the way its now-defunct global restructuring group treated small businesses.
“Since 2008, RBS has gone through a very difficult period, and there are still quite a few obstacles to be overcome before we’re back to full health,” Davies said. He added that he backed the strategy being adopted by the bank’s management, led by Ross McEwan, the chief executive.
McEwan has been reversing the global expansion that RBS embarked upon before its near collapse, withdrawing from 25 countries in a move expected to take a heavy toll on jobs. Approximately 900 posts have been lost since a year ago, reducing the number of staff to 92,400. “The years of global domination are over,” McEwan said.
He had hoped to have settled the long-standing case in the US over mortgage bonds but is still awaiting a court date. He also hopes the investigation commissioned by the Financial Conduct Authority into its small businesses restructuring business will be completed this year. The inquiry relates to accusations raised by businessman Lawrence Tomlinson, who accused RBS of pushing businesses to the brink.
“While legacy issues continue to be addressed, material and further incremental costs and provisions in respect of conduct and litigation-related matters are expected, and could be substantially greater than the aggregate provisions RBS has recognised. The timing and quantum of any future costs, provisions and settlements, however, remain uncertain,” the bank said, as it reported a fall in nine-month profits.
Its shares were down 1% at 317p in Friday’s early trading,below the 502p average price at which taxpayers bought the stake in the bank. The stake was reduced from 79% in August when the government starting selling its shares for the first time. Its 90-day, self-imposed lock-in to sell more shares ends on Monday.
Pre-tax profits fell from £3.3bn to £295m over the first nine months of the year. In the third quarter it made an an operating loss of £134m, compared with a £1bn profit a year earlier. The figures were knocked by £1.4bn of legal charges, compared with £1bn a year ago, and £2.3bn of costs to restructure the bank.
The bank is also moving closer to removing the dividend blocking the share owned by the government – which means the Treasury must receive any payouts before any other shareholders – as a result of selling off its last remaining stake in Citizens, the US bank. Overnight, the last remaining shareholding in Citizens was sold off, a disposal mandated as part of its taxpayer bailout and a further unravelling of the empire created by Fred Goodwin, who led the bank up to its taxpayer rescue.
The bank indicated the proceeds could be used to cancel this dividend access share.
McEwan attempted to justify the closures of RBS and NatWest branches by pointing to the growth of digital banking.