In what appears to be an almost annual rite of passage the bailed out bank Royal Bank of Scotland has once again posted an annual loss, for the eighth year in a row, and once again it’s been legacy issues that have been its undoing.
Every year we hope that the time has come for the bank to turn a corner and every year we return disappointed. CEO Ross McEwan must be wishing he had never taken on the task of turning the bank around when he took over the reins in August 2013.
While progress has undoubtedly been made, legacy issues continue to hold the bank back with the share price now trading back at levels last seen in 2012, it turns out the decision by the UK government to pare down 7% of its stake in the bank in the middle of last year doesn’t look such a bad decision after all, amidst a chorus of criticism that it was sold off too cheaply. That 330p price seems a long way away now.
A few weeks ago RBS revealed that it would be setting aside an extra £2.5bn in terms of provisions before it announces its full year numbers later this month. An extra £1.5bn will be set aside to cover likely fines from the US Department of Justice in respect of accusations that it sold toxic mortgage bonds. The bank is also expected to set aside another £500m cover PPI mis-selling, and taking a £498m goodwill write-down on its Coutts private bank. In addition management have also pledged to put aside an extra £4.2bn into its pension fund, which looks set to see the bank post a loss for 2015.
The restructuring plan looks set to continue though there still remains no clear plan as to what next steps get taken with respect to its Williams and Glyns branches.
This continued festering sore is likely to make any prospect of a return to paying dividends that much more difficult in the short term, and unless there is some clear evidence that this continued drip feeding of negative news shows signs of abating, it is going to be very difficult to see a rebound in the share price, as shown by today’s sharp falls.
This morning’s final numbers give little indication that we have reached a turning point for the bank and with total losses of £51bn since being bailed out the main question being asked is how much more money is going to be poured into this never-ending black hole.
Even allowing for the exclusion of so called “one-off” items pre-tax operating profits were also down from 2014 levels, though this is likely due to the negative effects of a lower interest rate environment.
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