Royal Bank of Scotland Records Massive Loss -- 2nd Update
August 05 2016 - 04:42AM
Dow Jones News
By Max Colchester
LONDON-- Royal Bank of Scotland Group PLC recorded a net loss of
more than GBP2 billion ($2.26 billion) in the first half of the
year, with management painting a bleak outlook in the wake of a
U.K. interest-rate cut and Brexit.
RBS's share price slumped 5% in early-morning trading Friday as
investors digested the weaker-than-expected results and fears that
the lender will struggle to generate returns following the U.K.'s
vote to quit the European Union.
Past problems continued to haunt the 73%-government-controlled
lender. RBS's bottom line was hit by a GBP1.32 billion provision to
cover litigation-and-conduct costs, including an undisclosed amount
to settle a lawsuit brought by shareholders who allege that RBS
didn't disclose its financial health ahead of an emergency capital
raising in 2008.
RBS also Friday said it will sell its Williams & Glyn unit
rather than continue an expensive plan to list it, a day after the
Bank of England decided to cut interest rates. Earlier this week,
the bank received an offer from Banco Santander SA's U.K. business
to buy the unit, according to people familiar with the offer. The
bank must dispose of the unit by the end of 2017 to meet European
state aid rules.
The lender recorded a net loss of GBP2.05 billion, compared with
a loss of GBP179 million a year earlier, as it crept toward its
ninth successive annual loss. Revenue fell 17% to GBP6.1 billion.
Gary Greenwood, an analyst, at Shore Capital said the results were
"worse than expected."
The outlook remains murky. RBS Chief Executive Ross McEwan rued
interest rates that are now "lower for longer and longer." RBS is
uncertain when the effects of Brexit will trickle through, but
dividends won't be paid until "2018 at the earliest," said Mr.
McEwan. More specific guidance will be crafted early next year.
Hitting return targets will now be "more challenging," the bank
said.
RBS could be hit hard by Brexit. The bank has in recent years
refocused on the U.K. and Ireland--two economies expected to feel
the most severe impact of Brexit. It also may move its headquarters
if Scotland were to leave the U.K., analysts say, with Scotland's
leaders having pushed for a second independence referendum.
RBS also took a GBP450 million charge for misselling
payment-protection insurance products. Restructuring charges
totaled GBP630 million in the half. Adjusted operating profit,
which strips out provisions, restructuring costs and other negative
items, was GBP2 billion. Income at RBS's corporate and retail units
remained stable compared with last year and should hold up in the
coming year, the bank said.
Write to Max Colchester at max.colchester@wsj.com
(END) Dow Jones Newswires
August 05, 2016 04:27 ET (08:27 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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