27th Jan 2016 08:46
LONDON (Alliance News) - Royal Bank of Scotland Group PLC on Wednesday said it will make a GBP4.2 billion payment into its main pension scheme, while setting aside billions of pounds to deal with past misconduct and an impairment charge in relation to its private bank.
Wednesday's actions are expected to wipe GBP3.6 billion from the group's tangible net asset value. The stock was down 1.5% at 257.00 pence early Wednesday.
The latest developments underline the scale of the turnaround job at hand for Chief Executive Ross McEwan, who has been leading the effort to return the bank to health. The financial crisis of 2007-09 still weighs heavily on RBS. The UK government remains its majority shareholder, with a 72.9% stake following Chancellor George Osborne's move to sell a 5.4% holding at a loss last August.
"I am determined to put the issues of the past behind us and make sure RBS is a stronger, safer bank. We will now continue to move further and faster in 2016 to clean-up the bank and improve our core businesses," McEwan said in a statement.
The GBP4.2 billion payment into the group's main pension scheme, which was closed to new employees in 2006, was mostly due to a change in the bank's accounting policy.
An additional provision of USD2.2 billion has been made for litigation claims in relation to the selling of US residential mortgage-backed securities, taking the group's total provision to USD5.6 billion. RBS said the new provision will cut its fourth quarter profit by GBP1.5 billion and its CET1 ratio by 0.6%.
However, RBS cautioned that no provisions have been made towards resolving the ongoing investigations by the US Department of Justice and various US attorneys general into its past conduct in relation to residential mortgage-backed securities.
"The costs of resolving these investigations could individually or in aggregate prove to be substantial, RBS said.
In the UK, RBS is one of several high street banks still grappling with the cost of mis-selling insurance products in the past. The payment protection insurance products were meant to guard policyholders in the event they lost income due to accident or income, but were found to be lacking in many cases.
RBS hopes its latest GBP500.0 million provision for the PPI scandal will be enough to put the matter to bed, as the prospect of a 2018 deadline for policyholders to claim compensation becomes more realistic. The bank said the additional provision, together with money already set aside, should be sufficient for anticipated claims costs through to the deadline. However, the bank stopped short of making a definite statement, noting that regulatory guidance, modelled future claims, and other assumptions could change.
Nevertheless, RBS said the pension policy changes and the latest conduct and litigation provisions have no effect on the group's distributable reserves, which added up to GBP16.6 billion at the end of September 2015.
Away from past conduct issues, RBS expects to book a GBP498.0 million goodwill impairment charge for its private bank in the fourth quarter of 2015, a move which won't hurt its CET1 capital ratio. The charge was due to several reasons, including an expected fall in future profitability as a result of low interest rates set by central banks, a higher tax rate, pressure on margins and higher capital allocations.
As of the end of December, RBS expects it will show a CET1 ratio of around 15.0% as a result of the various charges and provisions, compared to 16.2% at the end of September.
RBS will report earnings for 2015 on February 26.
By Samuel Agini; [email protected]; @samuelagini
Copyright 2016 Alliance News Limited. All Rights Reserved.
Related Shares:
RBS.L