By Max Colchester 

LONDON-- Royal Bank of Scotland Group PLC will roll out a new cost-cutting plan after recording first-half net loss of more than GBP2 billion ($2.26 billion) amid ultralow U.K. interest rates and uncertainty over Brexit.

RBS's share price slumped more than 5% in morning trading Friday as investors digested the weaker-than-expected results.

Chief Executive Ross McEwan said his executive team is working on a new cost-cutting plan that could be presented in the first quarter of next year. Like several other British banks, RBS warned of lower returns after the U.K. voted to leave the European Union.

A day after the Bank of England cut interest rates to a new low, the outlook for RBS remains murky. Mr. McEwan rued rates that are now "lower for longer and longer," and said dividends won't be paid until "2018 at the earliest." The lender said hitting return targets will now be "more challenging," adding that more specific guidance will be crafted early next year.

The bank also Friday ditched a plan to list its Williams & Glyn unit, saying the Bank of England's rate cut meant that the retail-banking business wouldn't thrive as a stand-alone business. Earlier this week, RBS 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 Williams & Glyn by the end of 2017 to meet European state aid rules.

The glum outlook echoed views from Lloyds Banking Group PLC and Barclays PLC, which both warned last week that growth could slow in the wake of Brexit and lower rates. Lloyds said it was cutting 3,000 extra jobs.

The problems are deeper at RBS. The 73%-government-owned bank'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 is halfway through a five-year restructuring plan that involves a global retreat and expected to feel the most severe impact of Brexit pushed for a second independence referendumpaying off billions of dollars of fines. But the effort to clean up past missteps is proving more expensive and long-winded than analysts expected. British taxpayers are unlikely to get back a large chunk of the GBP45.5 billion they pumped into the lender during the crisis, bankers say. RBS shares have dropped 46% over the past year to GBP1.84, well below the GBP5 average price the government paid in 2008.

Brexit isn't helping. 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.

The lender recorded a net loss of GBP2.05 billion in the first half of the year, compared with a loss of GBP179 million a year earlier, creeping 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."

RBS also took a GBP450 million charge for mis-selling 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 07:43 ET (11:43 GMT)

Copyright (c) 2016 Dow Jones & Company, Inc.
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