The chief executive of Royal Bank of Scotland has signalled a return to profit in 2018, finally drawing an end to a decade of losses that have exceeded £50bn since the financial crisis.
“In the next two years you’re going to see a great bank emerge out of this and I think the public in the UK will be very pleased with it,” said Ross McEwan in an interview with the Financial Times.
The Edinburgh-based lender, which is 72 per cent backed by the government, is braced to report its ninth consecutive net annual loss at the end of this week, which analysts estimate could reach £6bn.
The painful loss will come after a $3.8bn provision to cover a looming fine from US authorities for mis-selling mortgage securities, and more hefty restructuring expenses.
Since Mr McEwan took charge in 2013, the bank has boosted capital, stripped out costs, and sold vast swaths of assets. On Friday he was helped by a provisional deal with the EU that may end RBS’s obligation to offload Williams & Glyn as a separate bank in return for spending £750m on measures to boost small business banking.
But the bank still faces a potential demand for up to $13bn from US authorities and record-low interest rates are squeezing UK banks’ margins, which has forced it to delay profitability targets and embark on a fresh round of cost-cutting.
There has been speculation in the City of London that investors’ patience is wearing thin with Mr McEwan and he could be replaced this year.
This may be fuelled by a change the bank is considering making to its long-term incentive plan to allow senior executives to keep part of the share-based incentive award even if they leave before the three-year period is over.
But Mr McEwan insisted he was still up for the fight. “I want to see it through,” he said, adding: “You don’t do this job for the money.”
“It’s hard operating a business when the wind is constantly in your face,” he said. “It’s like cycling. You cycle in the wind, it is difficult, but when you turn the corner and get a little sense of that wind behind your back, it makes it a lot easier. And I don’t think we’re that far away from that turn.”
RBS calculated that if interest rates over the next few years had stayed at the low point they hit after the Brexit vote last June, it would have lost £1.2bn of annual revenue. In response, analysts expect it to this week unveil a fresh plan to shed about £800m this year and a similar amount in 2018.
Mr McEwan said costs are still “far too high” in its core retail and commercial business, and he aims to cut the share of every pound in revenue that is spent on operating expenses from 60p to 50p.
He said the key to cutting costs without losing revenues was shifting to digital services and “simplifying” the business. RBS has reduced the number of savings products it offers from seven to two, and rationalised its mortgage offers.
The bank plans to roll out a range of digital services over the next two years. Last week, it launched ‘Esme’, a digital site to offer small businesses a loan within hours.
Mr McEwan is also planning to re-enter the zero per cent balance transfer market after pulling out of the high-margin sector two years ago. That caused RBS’s total credit card book to shrink by about a third, though its interest-bearing balances shrank by only 8 per cent.
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