RBS payout up as bank averts crisis

Published on Saturday 23 February 2008 16:38

ROYAL Bank of Scotland is poised this week to increase its dividend and reveal that its newly acquired assets in emerging markets are trading above expectations, when it unveils a record profit above £10bn.

It is also expected to reveal a further loss on bad credit lines, but its full-year results statement is likely to confound those who remain sceptical about the strength of its balance sheet.

The Edinburgh-based bank is not thought to have any plans to raise capital by selling off major assets in the immediate future, beyond selling train-leasing company Angel Trains, though speculation lingers over the long-term status of some of its businesses, such as Direct Line and Churchill insurance.

RBS is more likely to follow Barclays and Lloyds TSB in raising its dividend, and chief executive Sir Fred Goodwin will draw attention to the businesses it has acquired from Dutch bank ABN Amro, which it bought last year in a three-way deal with Banco Santander and Fortis.

A source said: "RBS will not disappoint. It will increase the dividend and reveal the strength of the bank's position in emerging markets."

It is thought the ABN Amro businesses will enable RBS to significantly expand its transactional banking services, where business is conducted on a deal-by-deal basis. Stripping out ABN, expectations are for RBS to post underlying profits before tax of 10.3bn, up from 9.4bn last time. There was relief among investors at the end of last year when it confirmed lower than feared writedowns for both RBS and ABN of 1.5bn, of which 250m could be offset elsewhere.

Keith Bowman, analyst at Hargreaves Lansdown, said: "The market consensus is a 9% increase in dividend. RBS in the past year or two has been good at raising the dividend. Given that Barclays raised its dividend last week, there will be pressure on RBS to do the same.

"ABN will probably be the top of the list of priorities for the time being. I doubt they are going to say anything specific this time (on asset sell-offs].

"Rumours of a pending rights issue have been rife in recent weeks. However, such concerns also have to be weighed against the bank's recent investment record, with successes coming from the likes of Southern Water and the Bank of China. Much may also depend on just how vigorously management scoured the books at ABN before completing its acquisition."

Mike Trippet, analyst at Oriel Securities, said: "I've heard they are looking hard at all assets. I don't think Angel Trains would realise a huge amount of cash for them."

HBOS, parent of Bank of Scotland, will unveil year-end figures on Wednesday, with the spotlight once again on impairment provisions. Bad news from Bradford & Bingley has heaped pressure on HBOS's shares amid concerns over writedowns and arrears.

HBOS said in December that bad-debt charges were lower in the second half of the year, but according to Dresdner Kleinwort, the group could see some of the sector's highest bad-debt provisions, forecasting 2.24bn for 2007 – not far below the 2.8bn posted last week by its larger rival, Barclays.

Analysts are expecting underlying pre-tax profits of 5.76bn, up marginally on 2006's 5.54bn. HBOS has already revealed a 180m blow from the credit crunch, but the market will be watching for news of further losses or exposure. One source said HBOS would report a restoration of its 15-20% market share of mortgages, but a greater focus in future on profitable business rather than market share.