RBS to unveil more losses and compensation payouts

By TERRY MURDEN
Published on 29/07/2012 00:00

ROYAL Bank of Scotland will this week unveil another loss and more compensation for victims of insurance mis-­selling as chief executive Stephen Hester promises to root out bad practice.

Hester is expected to provide a frank assessment of the need for a rethink in the way banks deal with customers when he delivers half-year figures showing more evidence of the damaging effects of recent scandals.

He admitted last week that he expects the bank to be fined over the Libor rate-rigging scandal that has already cost Barclays £290 million in fines, comparing it to “treading on landmines”.

RBS fired four traders in a sign that Hester is not prepared to tolerate behaviour that brings the industry into disrepute.

He will call for bankers to change their ways if they are ever to regain the trust of the public.

However, the banking sector’s interim results season has been stained with fresh controversy after Barclays admitted on Friday that finance director Chris Lucas and three other current and former staff are being investigated by the regulator over fees paid to Middle Eastern investors at the height of the banking ­crisis.

Hester is expected to counter the negative sentiment by talking up the progress being made to repair and shrink the RBS balance sheet through the sale of non-core assets and improved trading. The bank is thought to be less exposed to Eurozone debt than some of its rivals.

While the second quarter loss will be much lower than the first three months of the year, the total loss for the half-year will come in at around £1.5 billion. At an operating level the bank should reveal a £2bn profit.

The mis-selling of payment protection insurance is proving a major headache for all banks and RBS has already set aside £125m for compensation, taking its current outlay to £1.2bn. It is expected to ­declare a further charge of a similar size this week, with the likelihood that more will be ­required.

Hester will update the market on the proposed flotation of its insurance businesses, including Churchill and Direct Line and the breakdown recovery service Green Flag.

RBS has been ordered to dispose of the insurance business by the end of 2014 after taking a £45bn government bail-out.

A listing on the London Stock Exchange is expected to be filed next month, but it will depend on market conditions. Sources in the City say there is a wall of money waiting for the right investment and that the business could do well.

However, two rival consortia of private equity firms are understood to be interested in making an offer.

Analysts will also want an update on the cost of the humiliating IT meltdown that left thousands of RBS customers without access to cash.

The bank has promised affected customers a compensation deal, pledging that those from other banks will also be repaid “knock-on” costs after they were left out of pocket by a computer failure that caused chaos.

The IT glitch lasted for days, mainly at RBS-owned NatWest, but lingered on for around a month at its Irish arm Ulster Bank.

Hester said he would forgo his 2012 bonus worth up to £2.4m in an attempt to calm anger.