27th Feb 2014 17:08
LONDON (Alliance News) - Royal Bank of Scotland Group PLC Thursday reported its sixth consecutive annual pretax loss and its biggest since 2008, while unveiling a business restructuring that further scales down its investment bank and narrows the bailed-out bank's focus to the UK.
RBS reported a GBP8.24 billion pretax loss for 2013, widened from GBP5.28 billion in 2012, after incurring a further GBP3.84 billion in provisions, including for product miss-selling and regulator fines, and GBP4.82 billion in impairments and other losses.
Its net losses over the past six years now stand at over GBP46 billion, almost exactly the amount it got from the UK government in its 2008 bailout.
RBS shares Thursday closed down 7.4% at 326.60 pence, the biggest decline on the FTSE 100.
Chief Executive Ross McEwan - who has endured a tumultuous first few months on the job including creating an internal bad bank to manage down toxic assets and the management of a large number of legacy issues still haunting the bank - unveiled a new strategic plan with a target of reducing the bank's cost base to GBP8 billion from GBP13.3 billion in 2013 in the medium term.
Under this plan, RBS's seven existing operating divisions will be restructured into just three businesses: Corporate & Institutional Banking, Personal & Business Banking, and Commercial & Private Banking. The change comes as RBS turns its focus away from its investment bank, the Markets division, which reported a 58% decline in operating profit to GBP638 million, reflecting the shrinking of its balance sheet and reduced risk levels.
"We will move from a corporate structure fit for a global titan to one better suited to a first-rate UK bank," McEwan said in a speech after the results, adding that RBS's smaller size would enable it to invest in technology. The bank has been criticised over the years for several technology failures after years of underinvestment in its systems.
RBS said the reorganised bank will be a UK-focused retail and corporate bank with an international presence in order to drive its corporate bank.
Les Matheson will be chief executive of Personal & Business Banking, and Alison Rose chief executive of Commercial & Private Banking. Donald Workman will be chief executive of Corporate & Institutional Banking.
The bank said it will provide a more detailed reviews of its component business lines within each of its business over the course of 2014.
The bank said it expects "elevated restructuring costs in the next two years" as it gets its customer service and costs back to where it expects them to be. It expects cost reductions and
improved efficiency as a result of its strategic review and expects the underlying cost base to be GBP1 billion lower in 2014.
"We have to be simpler. We need to cut our cost base. Our cost to income ratio has soared to over 70%, in a normal state we need to get that down to around 50%. This year that will mean
cutting around GBP1 billion of operational spending on things that don?t help our customers," McEwan said in his speech.
He suggested thousands more job cuts, saying the bank's contraction back to the UK would require much smaller back office operations.
RBS said the costs to achieve its new strategic plan will be about GBP5 billion over 2014 to 2017. About GBP1 billion of that has already been committed to the initial public offerings of US bank Citizens and new UK challenger bank Williams and Glyn, as well as the previous restructuring announced for the Markets business.
RBS said the its Capital Resolution Group, set up from January 1, will manage a pool of GBP29 billion in toxic assets. It had been forecast to manage GBP38 billion, but accelerated disposals and increased impairments reduced that total.
It is still aiming for a fully loaded Basel III Common Equity Tier 1 ratio of about 11% by the end of 2015, and 12% or above by the end of 2016. On a fully loaded Basel III basis, the Common Equity Tier 1 ratio was 8.6% at the end of 2013.
Meanwhile, RBS, said it raised GBP1.14 billion gross from the sale of its remaining significant stake in Direct Line Group PLC, selling the shares at 263 pence each to institutional investors.
RBS pays no dividend. It is negotiating with the UK government, which holds an 82% stake, for permission to resume dividend payments in the future.
"We are confident that the actions announced [Thursday] will deliver a customer-focused bank with undoubted capital strength, the potential for attractive returns and an ability to recommence dividends over the medium term," RBS said.
"Today won?t be the end of bad headlines. Past failures will continue to haunt us. But we can
weather them," McEwan added.
By Samuel Agini; [email protected]; @samuelagini
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