The Royal Bank of Scotland (RBS) reported an attributable loss of £469m for the third quarter of 2016 after being hit with nearly £900m of litigation and restructuring costs.
Shares jumped five per cent in morning trading before falling back - it was 1.6 per cent lower, at 193.3p, in lunchtime trading
28 October 2016 @ 9:00amRoyal Bank of Scotland Group (RBS)
Operating profits were £255m for the period, and the state-backed bank said that it had cut costs by £695m in the first nine months of the year and was well on track to hit the lender's target of carving out £800m of expenditure.
Total attributable losses for the year to date now stand at £2.5bn.
Chief exec Ross McEwan stressed that he had always said 2016 would be "noisy".
"These results reflect that noise. Our core business results were good with a £1.3bn adjusted operating profit, our best quarter since 2014. The core business has now delivered on average over £1bn in adjusted operating profit for the last seven quarters,” he said.
And RBS warned more "noise" was yet to come:
We continue to deal with a range of uncertainties in the external environment and also manage conduct-related investigations and litigation, including US retail mortgage-backed securities.
Substantial additional charges and costs may be recognised in the coming quarters which would have an impact on the group’s level of capital.
Equity analyst George Salmon of Hargreaves Lansdown had a gloomy prediction: "The bank is also in hot water with the department of Justice in the US over residential mortgage backed securities (RMBS) mis-selling [incidentally, the same thing which is causing Deutsche Bank trouble at present].
"While investors are none the wiser as to what the exact RMBS fine will be, it’s going to be a sizeable sum."
RBS has a considerable headache over what to do with subsidiary bank Williams & Glyn.
It was revealed today it has gone back to the Treasury as it will no longer be able to fully offload the bank as previously hoped (and as it was supposed to do under the conditions of its bailout). This could put the UK on a collision course with the European Commission in relation to the state aid provided to RBS.
Work has continued to explore means to achieve separation and divestment of the business previously described as Williams & Glyn.
RBS has had positive discussions with a number of interested parties concerning a transaction related to substantially all of the business. These discussions are ongoing and may or may not lead to a viable transaction.
However, none of the proposals under discussion can deliver full separation and divestment by 31 December 2017. RBS is therefore in discussion with HM Treasury, and expects further engagement with the European Commission, to agree a solution with regards to its State Aid obligations.
As if this wasn't enough, Williams & Glyn is weighing heavily on RBS' ability to generated profits. Managing Williams & Glyn cost RBS £301m in restructuring costs during the quarter. Within this, the taxpayer-funded bank was handed a bill of £127m in termination costs after it decided not to continue trying to create separate IT infrastructure for Williams & Glyn customers.
"The failure to offload Williams & Glyn branches by 2017 deadline are likely to impact on the market this morning as the bank posts a loss on the back of increasing costs," said Henry Croft, an analyst at Accendo Markets.