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Struggling RBS pushes back dividend, investors give up

The bank has announced capital repayments will now be unlikely to take place until after the first quarter of its 2017 financial year
February 26, 2016

Royal Bank of Scotland (RBS) chief executive Ross McEwan still has a long slog ahead of him in transforming the ailing banking group into a leaner, tougher operation. Investors hoping the bank's improved regulatory capital ratio would lead to dividends over the medium term had their expectations managed. The bank explained that drawn-out litigation in the US, as well as difficulties in separating challenger bank William & Glyn, meant capital distributions will now likely not happen until after the first quarter of 2017.

IC TIP: Hold at 225p

The bank managed to increase its ratio of tier one common equity to risk-weighted assets, which stood at 15.5 per cent at the period-end, compared with 11.2 per cent a year earlier. That was thanks to a £113bn reduction in those RWAs to £243bn, including the disposal of its US banking arm Citizens. The bad news for the fourth quarter was £1.5bn in litigation costs relating to the mis-selling of mortgage-backed securities in the US, and £500m in payment protection insurance provisions, which hammered the bottom line. Total litigation and misconduct costs amounted to £3.6bn for the year.

Unsurprisingly, the bank also incurred some hefty restructuring charges as it accelerated the downsizing of its investment bank. This business reported an operating loss of £837m, including restructuring costs of £524m. Management expects restructuring costs to remain high this year, forecasting around £1bn. The run-down of RBS's 'bad bank' incurred higher costs still of £1.31bn, and the separation of Willam & Glyn forced the group to book £630m in costs.

UK retail banking saw its net interest income decline 2 per cent to £4.15bn, with mortgage margins feeling pressure as customers moved towards fixed rate products. However, mortgage demand also drove an £8.2bn increase in net loans and advances to customers. Overall, the group's net interest margin was fairly flat year-on-year at 2.12 per cent.

Analysts at Investec Securities expect net tangible assets per share of 352.6p at the end of 2016, falling to 349.5p a year later.

 

ROYAL BANK OF SCOTLAND (RBS)

ORD PRICE:224.6pMARKET VALUE:£26.1bn
TOUCH:224.5-224.8p12-MONTH HIGH:414pLOW: 216p
DIVIDEND YIELD:NILPE RATIO:NA
NET ASSET VALUE:408pLEVERAGE RATIO:17

Year to 31 DecTotal operating income (£bn)Pre-tax profit (£bn)Earnings per share (p)Dividend per share (p)
201126.6-1.89-21.3nil
201225.8-5.17-54.4nil
201319.4-8.82-85.0nil
201415.22.640.5nil
201512.9-2.70-27.7nil
% change-15---

Ex-div:vna

Payment:vna