RBS has slumped to a quarterly loss after it joined Barclays in earmarking more cash to stave off potential payments over the forex scandal.
For the three months to the end of March, RBS posted a loss of £446m, a big swing from the £1.2bn profit it made in the same quarter last year.
The loss “included restructuring costs of £453m and £856m of litigation and conduct charges”, according to the bank. £334m of these costs are related to the forex scandal.
Operating profit was £325m, compared to £1.28bn for the same period last year. That was a rise on the last quarter, however, when it made a £375m loss. Adjusted operating profit was more bullish: it came in at £1.6bn, up 16 per cent from the first quarter in 2014.
Why it’s interesting
Like Barclays, RBS has launched a restructuring plan, which started in February. The changes aren't just cosmetic – RBS will pull out of 25 of the 38 countries in which it operates and cut its balance sheet by £65bn. It needed to make radical changes; it has made seven successive annual net losses.
Although it spent big on restructuring, it also sold some of its overseas operations, including its international private banking business to Bancaire Privee (pending regulatory approval) and the $5.6bn (£3.7bn) sale of Mizuho bank.
The £334m RBS has put aside relating to forex takes its total to £734m. This has been a hugely expensive scandal, although RBS’s costs are lower than those of Barclays, UBS and JP Morgan, which look likely to top £1bn each.
What RBS said
Operating expenses totalled £4.1bn, with adjusted operating expenses down 15 per cent from quarter one 2014 at £2.8bn, reflecting continuing headcount reductions. Compared with Q4 2014, adjusted expenses were down 11 per cent, or three per cent after excluding the impact of the UK bank levy booked in quarter four. Operating expenses included £856m of litigation and conduct charges, relating to foreign exchange and mortgage-backed securities litigation and investigations in the US together with other customer redress.
The forex scandal is rumbling on, with banks earmarking ever more funds for potential litigation costs. With this and other restructuring costs RBS is certainly weathering a storm, but, over the last 12 months, its share price has still outperformed the FTSE and some of its main competitors.