Royal Bank of Scotland (RBS) is expected to announce further growth in its core capital buffers later this week, fuelling speculation over when the bank will pay its first dividend since the financial crisis.
Analysts at Bernstein Research expect RBS to announce on Friday that its core capital buffers grew to 12.6 per cent in the third quarter, while Investec analysts are predicting a slightly lower 12.5 per cent capital ratio. The analysts expect the capital buffers to rise to 15.6 per cent and 15.9 per cent, respectively, by the end of the year.
RBS has not paid a dividend since 2008, when it collapsed and was bailed out by the government. The bank has previously indicated that it will begin paying dividends again in 2017.
The Treasury started selling off its shares in RBS in July, releasing a £2.1bn stake and reducing the taxpayers’ share of the bank to 73 per cent. Further sales are expected as soon as next month. In order to pay a dividend to investors, RBS has to buy back the dividend access share.
According to company-compiled consensus, RBS is set to report a £1bn underlying profit for the third quarter, with revenues of £3.2bn and costs of £2.2bn, when it announces results on Friday. The bank also received an additional boost last week when Citizens Financial, which RBS partially owns, posted profits of $220m (£144m) in the third quarter, up 16 per cent on the previous year. Citizens floated in New York last year, and since then, RBS has reduced its stake from 100 per cent to just under 21 per cent.
But RBS still faces an uphill struggle as it is could pay out at least another £600m for PPI in the third quarter. Analysts also point to a pending legal settlement relating to toxic loans which could impose billions of pounds of additional costs.