27th Jan 2014 18:43
LONDON (Alliance News) - Royal Bank of Scotland Group PLC said Monday it has set aside GBP3.07 billion in new provisions for a number of past issues, the bulk of which relate to litigation and regulatory decisions regarding mortgage-backed securities and securities sold in the years leading up to the financial crisis of 2008.
In a separate statement, RBS said its executive committee will not receive bonuses for 2013, though Chief Executive Ross McEwan already had said he did not wish to be considered for a bonus for 2013 or 2014, when he was appointed in August.
In a trading update ahead of the bailed-out bank's full-year results, RBS said it has set aside GBP1.9 billion to cover various claims and conduct issues over the sale of mortgage-backed securities and securities, most of which took place between 2005 and 2007.
RBS said it has set aside another GBP465 million to pay for payment protection insurance scandal, as claims failed to slow down as expected, bringing the overall provision to GBP3.1 billion. Of that sum, GBP2.2 billion had been utilised at the end of December 2013.
The remaining provision of GBP900 million covers approximately twelve months of redress and administrative expenses, RBS said.
On top of that, RBS said it has set aside another GP500 million for the costs of interest-rate hedging products redress and administration costs, bringing the total provision to GBP1.25 billion at the end of last calendar year. The bank said the increased provision reflects higher volumes of claims and anticipated redress payments.
Banks have been paying compensation to small- and medium-sized enterprise customers after UK regulators found that the businesses had been mis-sold complex derivative financial products.
RBS also said it has set aside another provision of about GBP200 million "for various conduct related and legal expenses".
"The scale of the bad decisions during that period means that some problems are still just emerging. The good news is we are now a much stronger bank and can manage these costs while still supporting our customers," McEwan said in a statement.
"Costs on this scale were not predicted by anyone when RBS was rescued in 2008. They come in addition to the costs of restructuring the bank's bad assets and restoring its funding to prudent levels after the financial crisis. They were a key reason we took the difficult decisions to reset our capital position last November," McEwan added.
That said, RBS stuck to the GBP4.0 billion to GBP4.5 billion range it gave for fourth quarter additional impairments and asset valuation adjustments in relation to the creation of RBS Capital Resolution.
RBS said its non-core asset reduction programme to manage down its non-core assets was accelerated in the fourth quarter of 2013, resulting in third-party assets on December 31 being below previous guidance of GBP35 billion. It said this faster process will be reflected in the division's operating loss for the quarter.
Meanwhile, RBS said it expects to report a Core Tier 1 ratio of about 11% for the full-year, while expecting the ratio to come in at between 8.1-8.5% on a fully loaded Basel III basis.
RBS said its Markets division's performance in the fourth quarter of 2013 "reflected normal seasonal trends".
At the time of reporting its third quarter results in November, RBS said it is likely to make a "substantial loss" for its last financial year as a result of an expected "significant increase" in impairments.
The bank will report its full-year results on February 27.
RBS shares closed down 2.2% at 332.20 pence per share Monday.
By Tom Waite; thomaslwaite@alliancenews.com; @thomaslwaite
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