Royal Bank of Scotland reported profit of £4.2bn for 2019 today, beating its financial targets as new boss Alison Rose outlined a rebrand of the bank to its Natwest name.
But RBS’s share price sank 6.4 per cent to lead the FTSE 100 fallers today.
Traders reacted badly to a cautious outlook on growth amid historically low interest rates as well as the bank’s commitment to new climate change targets. RBS also warned of a £200m regulatory income hit, in part from overdraft changes, in 2020 alone.
RBS posted an operating profit before tax of £4.23bn and an attributable profit of £3.13bn. Operating profit was 24 per cent higher than last year’s, and beat analyst expectations of £3.8bn.
For the fourth quarter, during which Rose took over, the bank posted an operating profit of £1.16bn and attributable profit of £867m.
The bank paid a net interest margin of 1.99 per cent, down slightly from 2018. But it boosted basic earnings per share from 13.5p a year ago to 26p for 2019.
Its return on tangible equity also almost doubled from 4.8 per cent to 9.4 per cent.
RBS will pay a final dividend of 3p per share – or £362m in total – and a 5p special dividend that comes to £606m.
Why it’s interesting
RBS impressed investors by beating analysts’ profit expectations by around £400m despite subdued growth in the UK economy, with interest rates still low after a period of political uncertainty.
Rose, who took the top job after serving as deputy CEO of Natwest, used her first set of results today to announce a shake-up at one of the UK’s biggest banks.
Firstly, she said the bank would go carbon net zero in 2020, before aiming to become “climate positive” by 2025 and halve the impact of the bank’s financing activity by 2030.
That could include moves like stopping lending to coal companies to achieve Rose’s transition into what she called a “purpose-led” bank.
She said: “Our performance doesn’t yet match the potential that exists in this bank. We can deliver so much more. The way people live their lives has changed. And their expectations of companies are changing too; looking for us to deliver not only financial performance but a positive contribution to society; benefitting customers and communities as well as shareholders. The future of this bank depends on us successfully delivering on both.”
And Rose also revealed a major rebrand to rename Royal Bank of Scotland as Natwest, its biggest retail banking arm.
Chairman Howard Davies said: “The board has decided that it is the right time to align the parent name with the brand under which the great majority of our business is delivered. Customers will see no change to products or services as a result of this change and will continue to be served through the brands they recognise today.”
Rose refused to confirm any job cuts at the bank after a Sunday Times report that said Rose was ready to axe 3,700 Natwest jobs to save £120m.
But the bank has committed to finding £250m of savings in 2020, with speculation job losses could fall in the 5,000-strong staff of Natwest Markets.
Rose now plans to halve investment bank Natwest Markets’ risk weighted assets to £20bn and warned RBS could take a £1bn hit as it overhauls the division.
Rose ‘has her work cut out’ at RBS
Nicholas Hyett, an equity analyst at Hargreaves Lansdown, said the downbeat guidance means Rose will “have her work cut out” in 2020.
“Bad loans have spiked and the bank reckons that could get worse. Meanwhile a highly competitive mortgage market is squeezing the turn the bank can make on lending and some fairly impressive loan growth is failing to make up the shortfall,” he added. “Restructuring costs remains substantial as well and look set to stay so.”
Joe Healey, investment research analyst at The Share Centre, added that the structural overhaul of RBS as it rebrands as Natwest, could also be a factor behind the share price.
“This moves the focus away from the core philosophy of driving shareholder returns to promote a more sustainable core business,” he said. “It appears not only RBS but others are entering a period of change in the industry pushed by an evolving market environment and stakeholder interests. The group has a history of restructuring – however, time will tell whether this is the right move for the historic bank.”
What RBS said
Chief executive Alison Rose said:
Today, we are setting a bold new ambition – to be a leading bank in the UK & Republic of Ireland helping to address the climate challenge; by making our own operations net carbon zero in 2020 and climate positive by 2025, and by driving material reductions in the climate impact of our financing activity. We are setting ourselves the challenge to at least halve the climate impact of our financing activity by 2030, and intend to do what is necessary to achieve alignment with the 2015 Paris Agreement.
This will be a significant challenge as we, like others, do not yet fully understand what this will require and how it will be achieved, not least as there is currently no standard industry methodology or approach. Solving this will require UK and international industry, regulators and experts to come together and find solutions. We are determined to not just play our part, but to lead on the collaboration and co-operation that is so critical to influencing the transition to a low carbon economy.
As a systemic UK bank, we must play an active role and these market leading ambitions underline our position. This is not only the right thing to do, it will give us the opportunity to do more business with our customers, as they transition to a low carbon economy. We are already taking positive steps in the right direction.