Friday 26 April 2019 8:37 am

RBS profits sink as bank warns future earnings face pressure from Brexit uncertainty

RBS profits fell in the first three months of 2019, it revealed a day after its chief executive announced his intention to resign.

Ross McEwan yesterday announced he would step down after five-and-a-half years at the helm, saying he had achieved his strategy to refocus the bank after its £45.5bn government bailout.

However, today the bank warned that ongoing Brexit uncertainty will pile further pressure on profits this year, sending shares down 5.5 per cent to 236.3p in early trading.

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The figures

RBS’s operating profit before tax sank £265m year on year to £1.01bn for the first quarter of 2019.

Attributable profit fell to £707m, down from £808m this time last year.

Still, the bank slashed operating expenses by £73m to £28m partially offset to drop.

RBS lent £7.6bn in new mortgage loans over the quarter, while net customer loans fell to £100.8bn, a £600m reduction compared to the final quarter of 2018.

Basic earnings per share fell to 5.9p from 6.8p in March 2018.

RBS plans to pay a £904m special dividend, or 7.5p per share, after a final dividend of 3.5p per share.

Meanwhile it counted 6.6m personal and business users of its mobile app.

Why it’s interesting

RBS boss McEwan has a 12-month notice period but there is already speculation about who will replace him at the helm of the part-public bank.

Alison Rose, boss of the “ring-fenced” Natwest Holdings arm of RBS, is seen as the current frontrunner, having already deputised for McEwan on occasion.

Whoever does take over will have a tough job to do, according to analysts, after RBS today warned that Brexit uncertainty will put pressure on profits in the short-term.

RBS faces the twin threats of the UK falling out of the EU without a deal – which could hit the UK-focused bank hard – and nationalisation under a government fronted by Labour leader Jeremy Corbyn.

Ed Monk, associate director from Fidelity Personal Investing’s share dealing service, said: “McEwan can claim credit for navigating RBS back to profitability last year but today’s update from the shows the challenge of growing from here.

“Ironically, it’s political factors holding back the RBS share price and preventing the government disposing of its 62% stake in the bank. RBS shares remain about half the government’s buying price when it rescued the bank and will struggle to recover that ground while the twin political threats of a no-deal Brexit and full nationalisation under a Corbyn-led government remain.”

However, others said McEwan will leave the bank in a much better position than it was in when he joined in 2013.

One of his first acts was to slash the headcount from 118,000 to 70,000 as he sought to put the bank back into the black after the financial crisis.

“The bank has returned to profit having navigated its way through a number of expensive and in some respects toxic legacy issues, which overshadowed the underlying business which has been large fairly profitable over the last few years,” said Michael Hewson, chief analyst at CMC Markets.

“The dividend has also been restored and the government has pared back its stake to 62 per cent, and while long term risks still remain, including some form of nationalisation if the political environment changes, the fact is that RBS is a much different bank now than it was a few years ago.”

Hewson pointed out that the lower operating profit still beat expectations, even while revenues of just over £3bn dipped below predictions.

In its first quarter of 2019 the bank reported an operating profit of just over a £1bn, beating expectations by around 10%, even though revenues were slightly below estimates at just over £3bn.

“The lower profits and miss on revenues along with the prospects for future income growth is being blamed on the uncertainty over the economic situation in the UK against a difficult political backdrop,” Hewson added.

“Businesses appear to be delaying making large capital commitments until the situation around the UK’s future relationship with the EU is resolved.”

Read more: FCA accused of using legal red tape to delay report into RBS GRG unit

What RBS said

RBS said: “While we retain the outlook guidance we provided in the 2018 Annual Results document, we recognise that the ongoing impact of Brexit uncertainty on the economy, and associated delay in business borrowing decisions, is likely to make income growth more challenging in the near term.”