ROYAL Bank of Scotland has set aside £2.5 billion to cover past wrongdoing and write down the value of its private banking arm, setting the scene for the institution to be in the red for the eighth year running.
RBS – still 73 per cent owned by the taxpayer after a £45bn state bailout in the financial crash – revealed in a shock unscheduled trading update that it had earmarked £1.5bn to cover expected legal action on US residential mortgage-backed securities.
The bank said it had also put aside £500 million extra in compensation for mis-selling loan insurance in the industry-wide payment protection insurance (PPI) scandal, and taken a charge of just under half a billion pounds for a write-down on its private banking division.
In addition, RBS is to pump £4.2bn into its pension scheme from reserves. The overall impact of the battery of new provisions, which chief executive Ross McEwan has previously branded “bumps in the road” to recovery, will be alongside ongoing restructuring charges to send the group into losses again for 2015.
The group posted a loss of £3.5bn in 2014, and in a “buy” note on Monday broker UBS estimated a pre-tax profit of just £354 million for last year.
On the stock market, RBS’s shares tumbled nearly 4 per cent to 250p, their lowest since 2012, before closing. That compares with a taxpayer buy-in price in 2008 of about £5 a share.
Mr McEwan said: “I am determined to put the issues of the past behind us and make sure RBS is a stronger, safer bank. We will now continue to move further and faster in 2016 to clean-up the bank and improve our core businesses.
“We’ve always been open about the scale of past issues facing RBS and although there is clearly much more to do, this announcement is a further step towards addressing legacy issues and building a great bank for our customers and delivering long term value for our shareholders.”
RBS is due to report its 2015 results on 26 February. The additional hit for US mortgages legal action takes its total on the issue to £3.8bn. However, RBS stressed this related only to civil claims and did not include any settlement relating to Department of Justice or US Attorneys’ investigations.