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Royal Bank of Scotland has reported a £7bn loss after taking a huge hit from mis-selling and conduct charges, as it unveils a fresh cost-cutting plan in an attempt to return to profit in 2018.

The annual loss represents the ninth in a row for RBS, up from a £2bn loss a year earlier and higher than analyst forecasts of a £6.1bn loss.

The worse-than-expected results come after the Treasury last week proposed to Brussels an alternative to selling off 300 branches under the Williams & Glyn brand, in a move that will cost RBS at least £750m.

RBS’s total losses since 2008 now amount to about £58bn, overshadowing the bank’s £45.5bn bail-out during the financial crisis.

In an attempt to repair the bank, chief executive Ross McEwan has set out new cost-cutting measures for the next four years to the end of 2020, as margins come under pressure from record low interest rates.

The chief executive is aiming for a bottom-line profit next year for the first time since the financial crisis.

Mr McEwan is targeting £750m of cost savings this year, as part of a total £2bn of planned cuts over the four-year period, which is expected to involve hundreds of job losses and branch closures.

The bank has pushed back its return and cost targets by another year, aiming to reach a cost-income ratio of below 50 per cent and a return on equity of at least 12 per cent by 2020.

Mr McEwan has said in the past that 2016 would involve settling the bulk of mis-selling cases – although the largest penalties from the US over mis-selling toxic mortgages have yet to be resolved.

Mis-selling and conduct costs amounted to £5.9bn in 2016, up from £3.6bn a year earlier.

Of this, RBS set aside £3.1bn to cover the impending US fine. It
earmarked £400m as compensation for small business owners that allegedly suffered from its controversial restructuring unit after the financial crisis. Some £600m went towards mis-selling payment protection insurance.

Restructuring costs amounted to £2.1bn as the bank continues to retrench from overseas countries to focus on UK retail and commercial banking.

This includes the £750m cost for the new Williams & Glyn plan unveiled last week. RBS has spent some £1.8bn over a number of years on attempting to divest Williams & Glyn.

The bank also paid the Treasury £1.2bn last year to settle a condition of its state bail-out, clearing the path for restarting dividend repayments at some point in the future.

Some £825m of costs were incurred as part of RBS’ ongoing run-down of its “bad bank”, the unit created after the financial crisis to house toxic assets and unwanted businesses.

Copyright The Financial Times Limited 2017. All rights reserved.
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