Royal Bank of Scotland reported a £7bn loss for last year, its third worst since the financial crisis and ninth since its bailout, as it took a huge hit from mis-selling charges.
The annual loss was up from a £2bn deficit a year earlier and higher than analysts’ forecasts of £6.1bn.
RBS, which is 72 per cent-owned by the UK government, unveiled a fresh cost-cutting plan in an attempt to return to profit in 2018.
Its total losses since 2008 now amount to about £58bn, overshadowing the bank’s £45.5bn rescue. About 90,000 jobs have been shed at the bank since the financial crisis, as RBS has sold off various business divisions, pulled out of 26 countries and taken the knife to costs.
The worse than expected results came after the Treasury last week proposed to the European Commission an alternative to RBS selling off 300 branches under the Williams & Glyn brand, a move that will cost the bank at least £750m.
Shares in RBS fell 1 per cent to 246.8p on Friday.
In an attempt to repair the bank, chief executive Ross McEwan set out new cost-cutting measures for the next four years, as margins come under pressure from record-low interest rates.
Mr McEwan is aiming for a profit next year for the first time since the financial crisis.
He is targeting £750m of cost savings this year, as part of £2bn of planned cuts, which is expected to involve hundreds of job losses and branch closures.
RBS 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.
“The bottom line loss we have reported today is, of course, disappointing but given the scale of the legacy issues we worked through in 2016, it should not come as a surprise,” Mr McEwan said.
“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 that with “£2bn coming out to get us back to a competitive shape there will be job losses we have to go through and that will be across the business”.
However, Unite, the union, called for a moratorium on branch closures, flagging that about 520 had been closed and thousands of jobs lost since 2014.
RBS said “one-off” costs amounted to £10bn last year. Of this, mis-selling and conduct costs amounted to £5.9bn, up from £3.6bn a year earlier. RBS had previously said the bulk of mis-selling cases would be settled in 2016, but the largest penalties from the US over mis-selling toxic mortgages have yet to be resolved.
Restructuring costs amounted to £2.1bn as the bank continued to retrench from overseas countries to focus on UK retail and commercial banking.
These included the £750m cost of the new plan for Williams & Glyn, through which RBS must offer funds and branch access to challenger banks in an effort to boost competition for small business customers. It also involves offering “dowries” to entice RBS business customers to move to rivals. The project is an attempt to satisfy conditions set by the European Commission for the bank’s £45.5bn bailout, after RBS failed to dispose of the Williams & Glyn business.
Sir Howard Davies, chairman of RBS, said the Treasury’s new plan was not “a sort of blood money because we can’t do this, it’s actually a better way of dealing with the objective”.
The bank also paid the Treasury £1.2bn last year to settle a condition of its state bailout, clearing the path for restarting dividend repayments.
About £825m of costs were incurred as part of RBS’s continuing rundown of its “bad bank”, the unit created after the financial crisis to house toxic assets and unwanted businesses.
On a pre-tax basis, RBS reported an operating loss of £4.1bn, compared with a £2.7bn loss a year earlier.
Its core business, comprising commercial and retail banking, delivered its eighth successive quarter of £1bn operating profit, stripping out one-off items.
Sandy Chen, an analyst from Cenkos, said the results “are a decent read — of course, legacy issues still remain, but the continuing bank’s performance is solid, and capital ratios are strong”.
RBS’s bonus pool shrunk by £30m to £343m for last year. Mr McEwan’s total pay amounted to £3.5m, in line with the previous year. But the bank reduced Mr McEwan’s potential share award this year by about 40 per cent, against a backdrop of greater scrutiny of executive pay.
In response to a question on whether he will stay at RBS, Mr McEwan said: “I certainly hope so; we’ve done all the hard work in the last three and a half years; I can sense this bank is on the turn . . . I’d like to be here when the bank fulfils what it can of being a great bank for the UK.”
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