RBS Hit by Almost $3.6 Billion of Provisions -- Update
January 27 2016 - 04:09AM
Dow Jones News
By Max Colchester
Royal Bank of Scotland Group PLC on Wednesday warned it would
slump to yet another full-year loss after it put aside GBP2.5
billion ($3.59 billion) to cover a slew of regulatory issues,
including a looming settlement with U.S. authorities over the sale
of mortgage-backed securities.
The 73% U.K. government-owned bank is continuing to trudge
through a range of legal problems built up over the years. The
provisions detailed Wednesday will show up in its full-year 2015
earnings expected late next month.
In an unscheduled update to investors, RBS said it would set
aside an extra GBP1.5 billion to cover litigation surrounding the
sale of toxic mortgage-backed securities in the U.S.
RBS said it would take a further GBP500 million provision to
cover the wrongful sale of insurance product Payment Protection
Insurance, which was widely sold to people who didn't need it. U.K.
authorities have set a proposed deadline in 2018 for compensation
claims and RBS expects higher customer claims in the lead up to
this.
The bank is also writing down the value of its private bank by
GBP498 million over concerns about its future profitability because
of low interest rates and higher tax rates.
"We've always been open about the scale of past issues facing
RBS," Chief Executive Ross McEwan said in a statement.
The U.K. government last year began to sell down its stake in
RBS at a huge loss. Since then RBS's share prices has fallen making
future sales even more unpalatable, with uncertainty over the size
of fines and restructuring continuing to irk investors.
In the U.S., RBS's extra provision related to mortgage-backed
securities brings the total set aside to GBP3.8 billion. The
provision only relates to civil litigation. It doesn't include any
reserves for an expected settlement with the U.S. Justice
Department, which is probing the bank over criminal and civil
issues related to the sale of mortgage bonds at the height of the
U.S. housing boom. A fine is expected this year but the bank's
executives said that a settlement isn't close. "Those negotiations
haven't been done," Mr. McEwan said on a call with reporters.
RBS said expects to have a full-year Core Tier 1 capital ratio
of 15%. It said it expected the hit on capital "to be partially
offset by a reduction in RBS's core-capital requirements."
Following a change in accounting rules the bank also said it
would recognize a GBP3.3 billion liability related to it pension
plan. The bank is taking a GBP1.6 billion hit to top up its pension
plan but this is unlikely to flow through to the bank's bottom line
for full year.
RBS is set to announce full-year earnings on Feb. 26.
Write to Max Colchester at max.colchester@wsj.com
(END) Dow Jones Newswires
January 27, 2016 03:54 ET (08:54 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
Royal Bank of Scotland (NYSE:RBS)
Historical Stock Chart
From Feb 2024 to Mar 2024
Royal Bank of Scotland (NYSE:RBS)
Historical Stock Chart
From Mar 2023 to Mar 2024