City reacts as RBS serves up £1.7bn boost for shareholders

Earlier this year chief executive Ross McEwan said he would be leaving the bank. Picture: Peter Macdiarmid/Getty Images

The Edinburgh-headquartered lender announced a special dividend of 12p per share alongside an ordinary interim payment of 2p per share.

An estimated £1bn of the £1.7bn payout will be returned to the taxpayer owing to the UK government’s stake in the bank following its bailout at the height of the financial crisis.

It comes as RBS said it had achieved its strongest half-year, bottom-line profits in more than a decade, with attributable profits surging 130 per cent to £2bn. Operating pre-tax profits rose 48 per cent to £2.7bn.

The interim figures were boosted by the sale of the group’s stake in Saudi bank Alawwal, which completed its merger with Saudi British Bank in June.

Costs were down by £173 million, with a target in place for £300m in savings by the end of the year.

Net lending was up 2.5 per cent, while the bank recorded £14.3bn in gross new mortgage lending.

Chief executive Ross McEwan said: “This is a solid set of results in challenging market conditions. We have delivered our largest half-year profit in more than a decade and have announced a further £1.7bn in dividends to shareholders, of which more than £1bn will go directly to the UK taxpayer.

“Given the uncertain and competitive environment, we are focused on the areas we can control; costs are down, capital and liquidity are strong and we continue to grow lending to the real economy.”

No announcements were made regarding the hunt for Mr McEwan’s successor, nor was any new provision made for PPI claims.

Shore Capital analyst Gary Greenwood noted: “Underlying profit performance was weaker than expected due to a pressure on net interest income but statutory profits benefited from a one off strategic disposal gain.

“The group has also announced a much larger-than-expected special dividend of 12p which follows on from the 7.5p announced alongside the prior full-year results.”

Donald Brown, head of private clients at Brewin Dolphin Edinburgh, said: “RBS is a very different bank to what it once was.

“While there are cautionary words around hitting some of it targets against the backdrop of Brexit, RBS appears to be in stronger shape – a fact reflected in its ability to pay a special dividend to long-suffering shareholders, following the sale of its stake in Saudi bank Alawwal.

“There are plenty of positives in these results, but its UK focus and the government’s remaining stake will likely continue to weigh down the share price in the short term. The special dividend will provide a hard-earned £1bn boost to the Exchequer.”

Richard Hunter, head of markets at Interactive Investor, said: “After years in the investment wilderness, RBS is finally making its way back into the fold. A strong second quarter has helped to inflate the half-year numbers.

“All is not plain sailing, however. Provisions for impairments remain stubbornly high and net interest margin is inevitably under pressure given the interest rate backdrop.

“Of particular disappointment within the statement is the guidance for 2020. Much of this is attributable to the economic uncertainty which will no doubt arise from the UK’s exit from the European Union, let alone the strains on global economic growth which are being exacerbated by the accelerating China/US trade spat.

“Meanwhile, the government stake is a long-term overhang on the share price.

“In the here and now, RBS is enjoying the fruits of a decade of financial pain and re-engineering.”