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.
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: | 224.6p | MARKET VALUE: | £26.1bn | |
TOUCH: | 224.5-224.8p | 12-MONTH HIGH: | 414p | LOW: 216p |
DIVIDEND YIELD: | NIL | PE RATIO: | NA | |
NET ASSET VALUE: | 408p | LEVERAGE RATIO: | 17 |
Year to 31 Dec | Total operating income (£bn) | Pre-tax profit (£bn) | Earnings per share (p) | Dividend per share (p) |
---|---|---|---|---|
2011 | 26.6 | -1.89 | -21.3 | nil |
2012 | 25.8 | -5.17 | -54.4 | nil |
2013 | 19.4 | -8.82 | -85.0 | nil |
2014 | 15.2 | 2.64 | 0.5 | nil |
2015 | 12.9 | -2.70 | -27.7 | nil |
% change | -15 | - | - | - |
Ex-div:vna Payment:vna |