RBS shares plunge 10% on £2 billion loss

Royal Bank of Scotland shares dropped like a stone in early morning trading, as the bank posted a £2 billion loss and postponed paying its dividend.

The UK government however will get a £1.2 billion dividend in the next few months, due to the special nature of the shares it bought in the bank as a condition of the bailout.

The recurring profit of the underlying RBS business was £4.4 billion, but £3.6 billion of litigation and conduct costs and £2.9 billion of restructuring costs pegged this back to a £2bn loss.

The bank still faces heavy conduct charges in the US, and high restructuring costs, as it trims down its business and focuses on the simpler, less risky bits of the banking landscape it wants to occupy.

The taxpayer now owns 72.6% of RBS, and it looks like it’s going to take a long time before that shareholding leaves the Treasury’s books. The government did sell 5.4% of its holding in August 2015. They sold the shares for £3.30 a pop, after today’s fall the share price stands at around £2.25.

Laith Khalaf, Senior Analyst, Hargreaves Lansdown:

‘RBS is the Jekyll and Hyde of the UK banking sector, and the moment it’s hard to see who is in control. On the one hand the bank is downsizing, de-risking and cost cutting, while at the same time conduct charges are playing havoc with overall profitability. There’s a really strong UK retail bank in RBS trying to get out, but its results are still dominated by the litigation and restructuring costs that stem from its former days at the vanguard of casino capitalism.

The bank also kicked the prospect of a dividend firmly into the long grass. Markets had expected a 2016 payment, but RBS now says this won’t happen before it gets itself clear of the worst of the conduct charges for mis-selling mortgage securities in the US; 2017 is now the earliest shareholders can expect a dividend.

That is of course, apart from Her Majesty’s Treasury, who are set to receive a dividend of £1.2 billion in the first half of 2016, around ten times the dividend the Exchequer will get from Lloyds. That’s because as a condition of the bailout, the government insisted that £1.5 billion be paid back to taxpayers before the bank could pay dividends to ordinary shareholders. This payment will settle that bill, and marks a small step in the bank resuming a normal relationship with private shareholders.

There was some good news hidden in today’s announcement. The bank’s capital position was significantly improved as a result of its disposal of riskier assets, and underlying profits remained flat despite the headwind of interest rates in the UK remaining lower for longer.

Overall RBS’ results are in stark contrast to yesterday’s figures from Lloyds, and demonstrate just how much daylight has opened up between the banks since the financial crisis. RBS is heading in the same direction as Lloyds and will probably get there, but it’s going to be a long haul.’