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McEwan urges certainty on Brexit

RBS beats profit forecast and unveils special dividend

Ross McEwan at agm

Ross McEwan: ‘The longer Brexit delays drag on, the harder it is for business to invest’ (pic: Terry Murden)


 

Royal Bank of Scotland chief executive Ross McEwan warned that all businesses are suffering from a slowing of investment decisions because of the Brexit impasse.

Announcing a doubling of attributable profits and a special dividend, Mr McEwan said in an interview this morning that politicians needed to provide certainty.

“What we’re seeing already in the market place – and this has been happening over the last few quarters – is larger businesses have been pausing on their investments in the UK.

“Over time that does trickle down into small businesses who support those larger businesses and therefore jobs and money that comes into this economy, and we’ve certainly seen that and I’ve called that out in the last quarter.

“We have a very small period of time left until the end of March and it’s time that our politicians got to the conclusion so that we can get some certainty going forward. The longer this drags on, the harder it is for business to invest and it does impact on everyday people in this economy.”

RBS reported a doubling of attributable profit to £1.622bn compared to £752m last time and an operating profit before tax of £3.359 billion against £2.2bn.

It proposes a final ordinary dividend of 3.5 pence per share and a 7.5 pence special dividend. Including the 2p interim dividend, the total dividend payment for 2018 is £1.6bn, of which almost £1bn will go to the UK Government.

The pre-tax figure is ahead of the forecast £1.58bn while the top line profit is below expectations of £4.6bn.

A fourth quarter attributable profit of £286m compares to a loss of £579m in 2017 and is the first bottom line profit in Q4 for eight years.

However, the net interest margin of 1.98% was 15 basis points lower compared with 2017.

The company took £278 million, or 3.6%, out of costs, excluding one-off VAT, taking the total over five years to £4.2bn.

The company said it continues to transition from physical to digital services with 6.4 million customers now regularly use the mobile app, 16% higher than 2017. In Commercial Banking, the company launched the Bankline mobile app in the Apple app store and customers can now apply digitally for loans of up to £750,000, the largest value offered by a UK commercial bank, with approximately 50% of loans given a decision in principle in under 24 hours.



In the results statement, Mr McEwan, said: “This is a good performance in the face of economic and political uncertainty, with bottom line profits more than double what we achieved the previous year.

“We are also announcing an intention to pay back more capital to shareholders and almost £1bn is set to be returned to UK taxpayers for 2018. 

“With strong capital and liquidity levels, we are well positioned to support the UK economy. Our total lending to business and commercial customers reached over £100bn at the end of 2018.”

Market reaction

Ed Monk, associate director at Fidelity Personal Investing’s share dealing service said: “RBS is at last putting the dark days of the financial crisis behind it, with results today confirming remaining legacy issues have now been settled and showing a doubling of attributable profits to £1.622bn and a dividend rise that were ahead of forecasts.

“It suggests the point is soon coming when the Treasury will seek to begin selling its giant stake back into private hands.

“Risks around Brexit remain, however, although banking licences in Germany and the Netherlands seem to be mostly in place to keep euro clearing flowing should there be a hard Brexit. RBS also made clear that cyber attacks were likely to have some impact, and warned its target of keeping costs to less than 50% of income by 2020 now looks challenging.”

Donald Brown, senior investment nanager at Brewin Dolphin Scotland, said: “The good news for shareholders is a final dividend of 3.5p per share, topped up by a special dividend of 7.5p per share.

“The UK Government, which still has a 62% share in the bank, will see £977 million flow into the public purse – but a further sale of the government’s stake could be in the offing, with the bank securing approval for a share buyback scheme.

“While there are clearly challenges ahead – RBS’s net interest rate margin decreased and it highlighted the additional costs Brexit will bring – this is a good set of results. However, the share price will likely continue to be weighed down until the government begins disposing of its stake in the bank.”

Russ Mould, investment director at AJ Bell, said:“For the first time since the financial crisis Royal Bank of Scotland is feeling sufficiently confident to pay a special dividend.

“This feels like a significant moment given there would have been times in the last decade or so when shareholders would have welcomed an ordinary dividend let alone anything on top.

“Today’s results saw the company beat expectations across several metrics and post a second consecutive year of profit. However, the main driver was lower impairments and a reduction in costs.

“While RBS looks like it is out of the emergency room, there remain question marks over just how healthy the underlying business is. Here the outlook looks somewhat less positive.

“Competition in the mortgage market means profit margins remain very tight and the company believes achieving its 2020 cost saving target will be a stretch given costs associated with Brexit.

“The 62.4% of the bank still owned by taxpayers represents a big obstacle to a return to normality for RBS. The prospect of further share sales by the Treasury could weigh on the share price, notwithstanding the bank’s recently announced plans to buy back shares from the Government itself.”

 …more follows



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