Bank 'making progress' says CEO

RBS reduces losses and plans further £800m cuts

RBS GogarburnRoyal Bank of Scotland today unveiled an eighth consecutive annual loss, though it was down 43% from £3.47 billion to £1.9bn.

It plans a further cut of £800 million from costs and will not meet its target of splitting off Williams & Glyn by the first half of next year as planned.

Chief executive Ross McEwan told a media briefingt that the cost cutting would be found through improvements in productivity and reshaping the international portfolio. It would “impact on staff” but he could not give a number.

The bank admitted it still had to confront misconduct issues. Litigation and conduct costs increased 63% or by £1.38bn to £3.6bn, compared with £2.2bn in 2014.

This includes: additional provisions for mortgage backed securities litigation in the US of £2.1bn; provisions for foreign exchange investigations in the US of £334m; customer redress provisions primarily relating to PPI of £600m; packaged accounts provisions of £157m; and other conduct provisions of £377m.

Asked why big bonuses were being paid to staff when the bank continued to make huge losses, Mr McEwan said the bonus pool was “a fraction of what it used to be”, but the bank had to be “pragmatic” in paying the rates required to hold on to “good people”.

Mr McEwan’s total pay has doubled to £3.8m but he is donating half his bonus to charity.

On the prospect of a Brexit from Europe, chairman Sir Howard Davies said the bank was focusing on the economic issues and “the appropriate word for that is unwelcome because there could be an impact on markets and on growth”.

In a statement, Mr McEwan said: “RBS made progress again in 2015. We ended the year a simpler, stronger bank with a business anchored squarely in the UK and Ireland, focused on retail and commercial markets.

“Year one of our plan in 2014 was about getting cost out and improving our capital position. This gave us the platform to go further, faster in 2015 by exiting more businesses that didn’t fit our strategy, and accelerating improvements in our core bank. We delivered on both.

“We are looking to take another £800 million from our cost base. This is an area where we must continue to be disciplined given the uncertain macroeconomic and low interest rate environment our core businesses face. In two years, we have taken out £2 billion in costs and next year will see us move closer to a sustainable cost base that reflects the size and scale of this bank.

“The separation and eventual divestment of Williams & Glyn remains a top priority for us. We will not now achieve our planned separation until after the previously announced Q1 2017, but remain committed to full divestment by the end of 2017. Separation of this business is a complex process and we continue to invest sizeable resources.”

Adjusted operating profit for 2015 is £4.4bn, compared to £6.06bn in 2014, largely due to lower income and lower impairment releases as well as losses on disposals out of CapRes.

Richard Jeffreys of Cazenove Capital Management said in a radio interview: “You have to look through the losses, which are effectively paying for the sins of the past and think about what is happening at the bank at the moment.

“RBS is trying to rebuild its franchise with retail customers and corporate customers it has cut most of its investment banking, it is cleaning up its act. It still has some way to go but eventually I think we’re going to end up with a much more effective bank.”

This will probably give shareholders a very good return “in the longer term”, Mr Jeffreys said, “It might not be as immediate as some of the other banks … but at a sensible investment level I think RBS could be a very good investment of course of the banks have the same problem of exceptionally low interest rates.”

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