By Max Colchester
LONDON-- Royal Bank of Scotland Group PLC on Thursday warned it
wouldn't be paying dividends until at least 2017 as the once global
bank continued its retreat to the U.K.
The bank, which is 78% owned by the British government, said net
profit for the second quarter of the year came in at GBP293 million
($457.2 million), compared with GBP230 million in the same period
last year, helped by a growing demand for mortgages. But RBS Chief
Executive Ross McEwan warned that it would be "a noisy year" with
the bank continuing to push through with an expensive restructuring
program while digesting a slew of litigation charges.
Earlier this year RBS said it would accelerate its plan to
shrink, exiting a raft of countries and dismantling large parts of
its investment bank.
On Thursday the bank said that it was making good progress in
boiling down unwanted asset. RBS remains on track to sell down its
interest in U.S. retail lender Citizens and run down its "bad bank"
by the end of the year.
Analysts welcomed the better-than-expected results and shares
rose 2% in early trading in London.
But investor hopes that RBS would quickly hand back the proceeds
of the sales were dashed. RBS said it plans to return excess
capital to shareholders through dividends and share buyback but not
before the first quarter of 2017. "We felt it was important to be
transparent with people," said RBS Chief Financial Officer Ewen
Stevenson.
RBS still faces a series of fines, notably over allegations that
it misled investors over the quality of U.S. mortgage backed
securities it sold. The bank said it had yet to begin settlement
discussion with U.S. authorities over the allegations. On Thursday
it put aside another GBP459 million mostly to pay the potential
penalties. So far RBS has provision GBP2 billion to cover the U.S.
fines.
The bank is also wading through a multiyear restructuring which
will cost around GBP5 billion to complete. In the second quarter
operating expenses rose 14% year-over-year on the back of the
restructuring and conduct costs.
Mr. McEwan denied that the continued uncertainty over the bank
would dent U.K. government's plans to start shedding its stake in
RBS soon. In June the U.K. Chancellor George Osborne announced that
the government would start selling down its holdings in RBS at a
loss. The government spent GBP45.5 billion bailing out RBS during
the financial crisis, in early June it valued its stake at GBP32
billion. The Treasury expects to raise at least GBP2 billion from
share sales by April next year, and to have sold at least three
quarters of the existing stake by 2020.
For many analysts RBS's results were stronger than expected,
notably in parts of the bank that the lender intends to focus on.
"These are good results," Citi analysts said, noting that the
bank's core businesses did well and the lender wrote back some loan
provisions into profit. Adjusted operating profit, which strips out
restructuring and other one-off costs, was GBP1.8 billion, down 7%
on the year before as income from the RBS's investment bank dropped
away. Revenue fell to GBP4.3 billion from GBP4.9 billion over the
year.
Write to Max Colchester at max.colchester@wsj.com
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