ROYAL Bank of Scotland chief executive Ross McEwan had warned before that there would be more “bumps in the road” as the state-backed bank carries on its exceptional charges-studded oddyssey of recovery.
But it still came as something of a surprise at the Q3 results last week when the bank flagged that future costs related to misconduct and litigation could be “substantially greater” than it has already set aside.
It is not about peanuts, as RBS has already earmarked £4.5 billion to address regulatory and legal actions, and the suggestion this amount may come up considerably short was an eloquent caveat to any over-confidence in the recovery.
Chancellor George Osborne has already bitten the philosophical bullet in accepting that, unlike the state’s rundown of its stake in Lloyds Banking Group, also acquired at the time of the financial crash, the government is prepared to take a taxpayer loss on RBS for the greater banking strategic good of getting it totally back in the private sector again.
But McEwan’s problem is that RBS remains in a corporate twilight zone, a limbo. Its underlying franchise, also incorporating NatWest and Ulster Bank, but not Citizens Financial any longer, is good. The underlying numbers for what is now a more streamlined and simpler organisation are pretty decent.
The chief executive’s desire for a more ethical approach, and the striving for a complete reversal of the global domination fetish associated with the Fred Goodwin era is palpable. But at the same time there remain the known unknowns of transatlantic regulatory probes, legacy issues that continue to overshadow the day-to-day progress of turning RBS around.
These include hefty fines over its part in the Libor scandal, foreign exchange rigging and IT failures. The US authorities are looking at whether RBS misled investors in mortgage-backed securities, and in this country the Financial Conduct Authority is looking at how the bank treated struggling small firms in its Global Restructuring Group unit.
On the other side of the pincer movement squeezing RBS’s aspirations to become a normal bank are the continuing considerable restructuring costs, £847m in the latest trading quarter. These costs are necessary to reposition the bank and put it on a firm footing again, but they are big enough to scar the headline trading results and therefore create a problematic backdrop for the selldown of the taxpayer’s remaining 73 per cent stake.
And when will the divi be restored at the bank? All indications are 2017 at the earliest. It hardly suggests investors will be breaking down the doors to snap up the government’s shares any time soon. Osborne is likely to be taken up on his preparedness for taxpayer losses.
In short, RBS has its head, arms and upper torso out of the quicksand, but its feet and legs are still caught up under the surface in its struggle to break free from the past. «