The UBS analyst who declared on Monday that it’s time to start buying shares in RBS again is probably feeling a bit sore this morning. The bank has just announced that it is setting aside a further £2bn to atone for its past mistakes - a move that will hit shareholders in the pocket and that sent its share price south by as much as 5.7% this morning.
RBS has struggled to move on from a series of scandals that have all come to a head in the wake of the financial crisis. £1.5bn of the hit is made up of cash set aside to cover litigation claims over its alleged mis-selling of ‘toxic’ mortgage-backed securities in the US. The remaining £500m has been earmarked to cover PPI claims in the UK.
And it gets worse. The bank is also taking a £1.6bn charge as part of its efforts to reverse the deficit in its defined benefit pension scheme and a £498m impairment on the ‘goodwill’ of its private bank division. Taken together all the charges mean RBS will post yet another loss this year.
The bank's chief exec Ross McEwan has what must be one of the most stressful jobs in the city. It doesn’t help that his biggest shareholder is the government, which has made it clear it is keen to get the bank back into private hands in the not-too-distant future. As well as dealing with all these reputational 'legacy issues', he has been slimming down the bank's balance sheet and is in the process of getting rid of its England and Wales retail banking arm, which is being rebranded as Williams & Glyn.
Today McEwan said he was ‘determined to put the issues of the past behind us and make sure RBS is a stronger, safer bank,’ adding that the announcement was ‘a further step towards addressing legacy issues and building a great bank for our customers and delivering long term value for our shareholders.’
There’s certainly a good case to made for the so-called ‘kitchen sinking’ strategy – chucking all the bad news out in one go in an effort to turn things around. But given the longevity of its woes, MT isn’t the first person to wonder just how many kitchens RBS has got.