In Depth

RBS smashes expectations with £940m profit

State-backed bank celebrates half-year success, but shadow hangs over rest of year

Royal Bank of Scotland has smashed analyst expectations for second-quarter and half-year profits, sending its shares markedly higher in a flat market. 

The state-backed bank posted a £939m profit for the first six months of the year, boosted by a bumper £680m profit in the past three months - almost double expert predictions for positive earnings of £343m, says the Financial Times.

"RBS said total income in the second quarter amounted to £3.6bn, up from £2.7bn a year ago, as the bank continues to focus on mortgage lending," added the paper.

At the same time, "amid a large cost-cutting drive and a focus on digitising the bank", RBS said costs are down £494m so far this year against its £750m savings target for the whole of 2017.

"Cost cutting is doing the job, while fewer conduct charges is helping a lot," Neil Wilson, senior market analyst at ETX Capital, told the BBC

Conduct charges - legal and compensation costs related to past wrongdoing - came in at £396m, of which £151m was to top up RBS's existing provision to pay a £3.65bn US fine over mis-selling boom-era mortgage bonds. 

The fly in the ointment is a looming second fine over mortgage bond mis-selling from the US Department of Justice, which is expected to be much larger and "is likely to push RBS into a loss for the full-year". If so, it would be the bank's tenth annual loss in a row. 

However, added Wilson, "the omens are looking a lot more promising for a return to private ownership.

"Based on these figures, the return to genuine sustained profitability in 2018 appears a lot more realistic."

RBS's report also said it is lining up Amsterdam to be its base to service EU clients in the event of a hard Brexit, capitalising on the legacy banking licence it holds following the 2007 purchase of ABN Amro. 

It added the office would not "be a large operation" and would have 150 staff, including some hired locally.

The bank's share price was up around three per cent this morning to £2.64, while the FTSE 100 was broadly unchanged. 

RBS agrees £4.2bn mortgage bond mis-selling fine

13 July

Royal Bank of Scotland has taken another step towards clearing its backlog of boom-era legal battles after agreeing a $5.5bn (£4.2bn) fine over mis-selling of mortgage bonds.

The settlement is with the Federal Housing Finance Agency (FHFA) and has been made without RBS admitting to any wrongdoing.

It had set aside £6.6bn to settle outstanding legal issues, of which £3.6bn was earmarked to meet a penalty from the FHFA.

The Financial Times says the actual bill for RBS will be £3.65bn "because of a number of reimbursement agreements… with third parties" - and it will set aside another £151m in its second-quarter results in August.

But RBS may eventually need to raise much more: its remaining provisions will be just £3bn and according to The Guardian a separate fine also related to mortgage bonds from the US Department for Justice could be as much as £9bn.

The bank was the largest non-US bank involved in the sale of complex, packaged mortgage derivatives and sold $32bn (£25bn) worth of bonds before the financial crisis.

These bonds were effectively slices of huge syndicated bundles of mortgage loans, many of which were to sub-prime buyers with a poor credit history.

As the loans were highly diversified it was assumed they were safe and they were rated as the top investment grade. Ultimately, however the default level in the sub-prime market was worse than expected and the bulk of these bonds turned toxic.

NHFA brought lawsuits on behalf of Federal housing agencies Fannie Mae and Freddie Mac, which bought a number of bonds and used returns to advance more mortgage loans. It claims RBS was not honest about the risk of failure.

Ross McEwan, chief executive of RBS, said: "This settlement is a stark reminder of what happened to this bank before the financial crisis, and the heavy price paid for its pursuit of global ambitions.

"This bank and British taxpayers have paid a high price for these poor decisions."

RBS moves 440 more jobs to India

26 June

Royal Bank of Scotland is cutting another 443 jobs in the UK as part of its ongoing drive to reduce its costs and return to profit.

The roles, in the business lending division, will be moved to its site in Mumbai, India, it said.

A spokesman said: "As we become a simpler, smaller bank, we are making some changes to the way we serve our customers. Unfortunately, these changes will result in the net reduction of 443 roles in the UK."

The bank added it would support staff affected by the "disappointing news", including by moving them into new roles where possible.

Rob MacGregor, national officer for finance at Unite union, told The Guardian the move, which takes the number of people working in the Mumbai unit to 12,500, was inappropriate for a bank that received taxpayer support to survive during the banking crisis.

He said: "We feel RBS has a moral responsibility to try wherever possible to keep work here in the UK."There is no customer business in India; it is just where they can get the jobs they want doing done cheaper."

Mike Cherry, chairman of the Federal of Small Businesses, told the BBC it was also concerning for small firms, who feared they would lose "local expert staff" to "call centres halfway round the world". RBS is the largest lender to businesses in the UK.

However, RBS said all customer-facing and credit decision roles would remain in the UK and that the staff in Mumbai would carry out other roles such as background checks.

The decision is the latest in a series of job cuts from the bank. Last year, it announced it was moving 400 roles to India, while this year has already seen 250 IT jobs go, dozens of which were moved to India.

Meanwhile, in March, 362 jobs were lost in a separate cull of 158 branches, mostly its Natwest outlets.

RBS close to settling $4.5bn mortgage bond mis-selling fine

7 June 

Royal Bank of Scotland is reportedly close to settling one of its big outstanding legal actions related to activities in the pre-financial crisis era.

The alleged $4.5bn (£3.5bn) settlement with the US Federal Housing Finance Agency (FHFA) "would draw a line under one of RBS' largest legal challenges and potentially pave the way for the government selling down its stake", says City AM.

That figure is attributed to a "Whitehall source" also cited by Sky News, which adds the source also suggested "an announcement [could] be made in the next few weeks".

The fine "relates to the mis-selling of mortgages to the US government-backed loan firms Fannie Mae and Freddie Mac prior to the 2008 financial crisis", says Sky.

RBS is one of many banks forced to account for the sale of hundreds of billions of pounds of mortgage-backed bonds into markets before the crash, which the US Department of Justice (DoJ) claims were mis-sold.

There will be another legal settlement to follow - and that could be even more costly, based on the DoJ's $7.2bn (£5.8bn) penalty for Deutsche Bank, which is thought to have less exposure than RBS to the scandal.

Consequently RBS will need to set aside more money. It has so far ringfenced £6.7bn ($8.3bn) to cover both fines.

The state-backed bank is the last of 18 that has not settled with the FHFA, but Sky says fellow UK bank Barclays is also yet to secure a deal with the DoJ.

RBS's legal fight with investors to cost £1bn

7 June 

Royal Bank of Scotland has spent £1bn on avoiding legal action over its controversial £12bn rights issue in 2008.

According to the Daily Telegraph, the bank paid around £700m to settle with almost nine in ten of the shareholders who participated in the fundraising, who at one time were claiming £4bn in damages.

Of the remaining 9,000 investors, enough of them have agreed to a revised settlement offer worth around £200m that the bank will avoid an embarrassing High Court trial that would have seen its former boss Fred Goodwin grilled.RBS "has also racked up more than £100m on legal fees in the four years since the lawsuit was filed", the Telegraph adds.

At a hearing this morning, 87 per cent of the 9,000 investors have accepted the bank's revised 82p a share offer, which is almost double the previous highest offer of 43.5p per share, The Financial Times says.

"However 13 per cent of investors by value remain undecided and need further time, the High Court heard. The current trial should be delayed until further notice, lawyers for the shareholders told the court.

"Only one individual with 2,000 shares had indicated he was 'dissatisfied' with the RBS offer and most of the 13 per cent have indicated 'they intend to accept the settlement proposal', the court heard."

It was previously reported that the group only needed the agreement of 70 per cent of claimants by value to make the deal binding on every member.

The so-called "die-hard" shareholders wanting to take the case to trial say they have raised £7m to fight a prolonged trial, but lawyers for the action group said they had seen "no evidence that funding is available".

RBS strikes deal to avoid Fred Goodwin court date

06 June

Royal Bank of Scotland will avoid what could have been an embarrassing High Court trial involving a grilling of its disgraced former boss Fred Goodwin.

According to the BBC, the bank's settlement offer off 82p a share has been accepted by the action group which brought the case on behalf of investors who lost money after a £12bn rights issue in 2008.

The revised settlement, first put forward last month, represents a near-doubling of the previous best offer of 43.5p a share and amounts to around £200m in total. Investors had been fighting for £700m (together with interest).

A spokesman for the action group said: "The directors met last night to consider the legal advice and took the decision that this matter will not now go to court."

There have been conflicting reports on how many of the investors accepted the deal. The Guardian suggests about 80 per cent took up the offer.

Around 70 per cent of claimants by value were required to accept the deal to make it binding for the entire group. To go to trial, the group needed to raise about £7m.

Some investors are still unhappy, however. Neil Mitchell, a businessman involved in a separate lawsuit against RBS, told the Guardian: "It’s really odd - why have the group accepted?"

A good number of the shareholders, including former RBS staff, have been holding out for a higher offer. Some say they are not prepared to accept a deal on any terms and want to see Goodwin face his day in court.

The investors claim that RBS misled them over its financial strength at the time of the 2008 fundraising, given that within six months of the rights issue the bank was forced to accept a £45bn bailout from the government.

Taxpayers still have a 73 per cent stake in the bank. Shares are now at 253p and languishing at around half their bailout levels.

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