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Bank remains confident

RBS sees profits fall by half as Bo brand axed

Alison Rose

Alison Rose: ‘proud of how we have responded’ (pic: Terry Murden)

Royal Bank of Scotland has reported a first quarter operating profit before tax of £519 million, down by 49% from £1.013bn in the corresponding period last year.

There was a 59% fall in attributable profit of £288m, against £707m last time.

Net impairment charges came in at £802m and include a £628m charge in respect of a more uncertain economic outlook.

The charge is almost 10 times higher than the £86m net impairment in Q1 19.

Barclays, Lloyds, and HSBC have all reported steep falls in quarterly profits this week amid worries over loan defaults.

Bo will be wound down

RBS is winding down Bó, the digital bank launched only last November, as a customer facing brand.

It has 11,000 customers and the decision ends the bank’s attempt to compete with digital challengers such as Monzo, Startling and Revolut.

RBS will instead focus on Mettle, the second of its two digital-only challenger brands. Bó will be merged with Mettle, which is focused on the small business market.

Group chief executive Alison Rose said the bank has always tried to innovate but “in the current situation we’ve had to make prioritisation choices around where we should invest and what we should do to support our existing customers.”

In a call with journalists today, she said RBS had taken the “prudent” decision to merge the brand with Mettle.

Social distancing

Ms Rose expects social distancing to be in place “for a long period of time and that it will affect what we do”.

She said: “I am mindful of the mental health issues and that not everyone’s circumstances are conducive to working from home.”

Outlook uncertain

On the broader economic situation, Ms Rose, said: “Every person, family and business has been affected by the current situation and normal business activity has been severely impacted.

“We are putting our purpose into action and I am proud of how we have responded, providing our customers, communities and colleagues with the support they need.

“Although the outlook remains extremely uncertain, we approach the crisis from a position of strength, with confidence in our balance sheet and focus on our strategic priorities.”

Reaction

Donald Brown, senior investment manager at Brewin Dolphin, said: “RBS had gone a long way down the road to recovery following the last major crisis, but the economic impact of Covid-19 has set it back a few steps.

The bank has put aside £802 million to cover the potential cost of bad debts; profits have been put under pressure; and it is scrapping its digital Bó brand – only recently launched, it was likely ill-fated from the outset in a highly competitive online environment.

It is worth noting, however, that RBS is a very different bank to what it was in 2008: its capital position is relatively strong, it has good liquidity headroom, and a rigorous cost-cutting programme has removed unwieldy complexity.

Nevertheless, the health of the wider UK economy is going to dictate RBS’s prospects over the next year and that is reflected in the current share price, which remains overshadowed by the government’s 62% stake. Recent market movements have ensured that any further reduction remains highly unlikely. ”

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