RBS remains on track despite PPI profit wipe out

Royal Bank of Scotland has swung to a loss after taking a fresh £900 million hit for payment protection insurance (PPI) claims.

The bank said it remained on track for full-year expectations in 'uncertain times'. Picture: Contributed

The Edinburgh-headquartered lender reported a pre-tax operating losses of £8m for the three months to the end of September, compared with a profit of £961m a year earlier. It posted attributable losses of £315m for the third-quarter period, against profits of £448m a year earlier.

RBS, which remains 62 per cent owned by the taxpayer, blamed losses on the £900m bill for PPI following a last-minute surge in claims ahead of the late August deadline, as well as a “particularly challenging” quarter for its investment banking arm.

The bank said it remained on track for full-year expectations in “uncertain times”.

New CEO Alison Rose is set to take the reins from Ross McEwan on 1 November. Picture: Contributed

Operating profits stood at £2.7 billion for the nine months of the year so far, down slightly on the £2.8bn reported in the same period last year.

The figures mark the last for chief executive Ross McEwan before he hands over to Alison Rose, who will make history as the first woman to run one of Britain’s major high street lenders. McEwan is due to leave on 31 October.

Tough environment

Chief financial officer Katie Murray said: “These results demonstrate our solid underlying performance in a tough operating environment. The core retail and commercial bank continues to perform well, and we are making good progress against our targets for the year.

“We have seen strong growth across the business and our sustained high levels of capital and liquidity mean we are well positioned to support our customers in these uncertain times.”

Ed Monk, associate director from Fidelity Personal Investing’s share dealing service, noted: “There is no easy start for new RBS CEO Alison Rose with third-quarter numbers underlining the tough conditions for banks.

“Profits were all but wiped out by another £900m provision for PPI mis-selling, and net interest margin was trimmed to just 1.97 per cent as the flattening of the yield curve this summer left even less room for the bank to make money on lending.

“Earnings expectations were left unchanged, but previous ambitions for profitability in 2020 are now unlikely to be met. For investors, RBS may be attractive on value grounds and brokers have set elevated target prices for the shares, but the update lays out the challenge in getting there.”

Cautious

Shore Capital analyst Gary Greenwood said: “There is no change to the cautious outlook provided at the interim results.

“New CEO Alison Rose is set to take the reins from Ross McEwan on 1 November. With her predecessor having already dealt with the major legacy issues, we think that her focus will be on… improving the performance of underperforming operations (notably Ulster Bank and NatWest Markets) and distributing surplus capital to shareholders.”

John Moore, senior investment manager at Brewin Dolphin, said: “The last set of results for RBS were a watershed moment, confirming it is on the road to redemption. Whilst this remains the case, [this] statement highlights the legacy issues that the bank, and many of its peers, still face – in particular, PPI claims have pushed RBS back to a loss.

“This will likely be temporary, but analysts will be more focused on the competitive pressures that led to the compression of RBS’s net interest rate margin.”