Friday 24 February 2017 7:15 am

Royal Bank of Scotland's losses widen to £7bn for 2016 as mis-selling charges take their toll

Royal Bank of Scotland (RBS) has announced a multi-billion pound loss for the year to the end of December due to misconduct charges and restructuring costs, making 2016 its ninth straight year of losses.

The figures

The 73 per cent state-owned bank posted an attributable loss of £6.96bn, after a loss of £1.98bn in 2015 due to litigation and conduct costs of £5.87bn, restructuring costs of £2.11bn and other costs of £8.22bn, RBS said.

The bank made an operating loss of £4.08bn, compared with a loss of £2.7bn the previous year, and adjusted operating profit was down 17 per cent from 2015, at £3.67bn.

Total income fell to £12.59bn, compared with £12.92bn the year before.

In 2017, the lender plans to cut expenses by £750m through a focus on "simplification and digital transformation" to help offset the challenge of a low interest rate economy that makes it harder for the bank to make money.

Shares were down 3.81 per cent at 239.9p in afternoon trading.

Read more: This is how City analysts reacted to RBS' results

Why it's interesting

RBS has been hit by a number of outstanding issues as it attempts to turn its business around, but the lender (rather optimistically) said 2017 will probably be the final year it makes losses.

Last month, the bank announced it will add £3.1bn to a provision for its fine from the US Department of Justice for mis-selling mortgage-backed securities, and last October it said it will set aside £400m to compensate small businesses, which claim they were mistreated while in its Global Restructuring Group (GRG).

The lender confirmed last week it will no longer be required to sell its Williams & Glyn, a 300-plus branch network, one of the conditions of its bailout during the financial crisis. If adopted by the European Commission, RBS said it will assess the timing and manner in which it will reincorporate the business into the RBS franchises. The reintegration will likely create some additional restructuring charges during 2017 and 2018, RBS said.

RBS didn't specify where the axe will fall in its £750m cost-cutting plan, but they are expected to partly hit its branch network. The bank had already decreased its full-time equivalent staff numbers to 82,500 by the end of last September, down 9,900 compared with the end of September 2015.

What RBS said

Chief executive Ross McEwan said: 

This is a bank that has been on a remarkable journey. We still have further to go. But the next three years will not be the same as the past three.

He added RBS is in the final phase of its three-phase strategy to turn the bank around.

The bottom line loss we have reported today is, of course, disappointing but given the scale of the legacy issues we worked through in 2016, it should not come as a surprise. These costs are a stark reminder of what happens to a bank when things go wrong and you lose focus on the customer, as this bank did before the financial crisis.

We made good progress throughout 2016 against our strategy. Our core business generated £4.2bn in adjusted pre-tax operating profit for the year – that’s an average of £1 billion per quarter for the last eight quarters. We were the fastest growing large bank in the UK last year with £24bn of new lending into the economy supporting over a million businesses and home owners. This bank has great potential. We believe that by going further on cost reduction and faster on digital transformation we will deliver a simpler, safer and even more customer-focused bank.