The Royal Bank of Scotland (RBS) swung to a loss during the last quarter as a rush of payment protection insurance (PPI) claims caused a £900m hit to the lender’s balance sheet.
RBS reports an operating loss of £8m for the nine months to the end of September 2019, falling from £961m in the same period last year.
A challenging quarter in the NatWest Markets division, where total income plunged by £419m to £150m in the wake of flattening yield curves, also dragged down the bank.
Shares in the bank were down roughly 3.5 per cent in early morning trading.
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The bank’s Common Equity Tier One capital ratio, a key measure for financial health, was 15.7 per cent during the last three months, falling from 16 per cent in the same period last year.
Conduct and litigation costs have hit £750m for the third quarter, bringing the year-to-date total up to £810m.
‘A tough economic environment’
Chief financial officer Katie Murray described the results as a “solid underlying performance in a tough economic operating environment.”
On Brexit, Murray told reporters this morning: “As far as RBS is concerned, our preparations in place.”
She added: “Larger corporates are holding back a bit in terms of investments.”
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Shares in the spotlight
Shares in RBS have climbed roughly 12 per cent in the last month, with hopes of a Brexit deal boosting investor optimism for the stock.
However, Shore Capital described the results as “disappointing”, with banking analyst Gary Greenwood concluding: “The shares have rallied recently on optimism that a no deal Brexit can be avoided, thus closing some of the gap to our current fair value of 275p (18 per cent upside) but are likely to trade down today on a disappointing update.”
No easy start for Rose
The taxpayer-controlled lender confirmed last month that Alison Rose, an RBS lifer who previously served as the firm’s deputy chief executive at NatWest Holdings, is replacing Ross McEwan as the firm’s chief executive.
Rose, who is the first woman to lead one of Britain’s big four banks, will start her new role next week but is not expected to unveil the firm’s broader strategy until February.
“There was no easy start for new RBS CEO Alison Rose with third quarter numbers today underlining the tough conditions for banks,” said Ed Monk, associate director from Fidelity Personal Investing’s share dealing service.
He added: “Profits were all but wiped out by another £900m provision for PPI mis selling, and net interest margin was trimmed to just 1.97 per cent as the flattening of the yield curve this summer left even less room for the bank to make money on lending.”
The PPI saga
PPI charges have hit a number of large British banks in recent months, with a flood of last-minute claims ahead of an August deadline pushing up costs for lenders.
The PPI deadline has brought down the curtain on a major financial scandal that involved banks and loan providers mis-selling policies to people who did not need them between 1990 and 2010.
In a statement she said: “These results demonstrate our solid underlying performance in a tough operating environment. The core retail and commercial bank continues to perform well, and we are making good progress against our targets for the year.
“We have seen strong growth across the business and our sustained high levels of capital and liquidity mean we are well positioned to support our customers in these uncertain times.”