Royal Bank of Scotland (RBS) closed out 2019 with shareholder profits and capital ratios ahead of City forecasts. Now free of fresh PPI provisions, the fourth quarter return on tangible equity (RoTE) even climbed to an impressive 17.7 per cent. Shareholders rewarded this commendable performance by sending the lender’s shares down by as much as 7 per cent.
Two reasons explain the reaction. First, the bill for the proposed restructuring of NatWest Markets could hit £1bn in 2020, suggesting chief executive Alison Rose’s drive to build a “safe, simple and smart bank” will come with costly strings attached. Second, analysts had been guiding for a slightly higher capital return than the 3p final and 5p special dividends proposed, particularly with the group’s common equity tier-one (CET1) capital ratio elevated at 16.2 per cent.
Ms Rose should press on regardless. After posting another negative return on tangible equity in 2019, NatWest Markets is in dire need of reform; reducing rolling costs below income is a priority, while the proposed £6-8bn reduction in the division’s risk weighted assets looks sensible.
On capital returns, RBS – soon to be re-branded Natwest Group – also has its hands tied. On a call with reporters, chairman Howard Davies emphasised large shareholders’ preference for a government-directed share buyback, rather than a bumper pay-out.
Consensus forecasts are for earnings of 21.2p per share this year, and 23.8p in 2021.
| ROYAL BANK OF SCOTLAND (RBS) | ||||
| ORD PRICE: | 214p | MARKET VALUE: | £ 26bn | |
| TOUCH: | 213.8-214p | 12-MONTH HIGH: | 265p | LOW: 177p |
| DIVIDEND YIELD: | 2.3% | PE RATIO: | 8 | |
| NET ASSET VALUE: | 360p | LEVERAGE | 19.4 | |
| Year to 31 Dec | Total operating income (£bn) | Pre-tax profit (£bn) | Earnings per share (p) | Dividend per share (p)* |
| 2015 | 12.9 | -2.70 | -27.7 | nil |
| 2016 | 12.6 | -4.08 | -59.5 | nil |
| 2017 | 13.1 | 2.24 | 6.3 | nil |
| 2018 | 13.4 | 3.36 | 13.5 | 5.5 |
| 2019 | 14.3 | 4.23 | 26.0 | 5.0 |
| % change | +6 | +26 | +93 | -9 |
| Ex-div: | 26 Mar | |||
| Payment: | 04 May | |||
| *Excludes special dividends of 7.5p in 2018, and 17p in 2019 | ||||
