RBS share price slides on warning of £500m charge

Invezz, 25.10.16

 

“Dash-for-cash” scandal likely to hit bank this year

 

Signs of the potential hit to Royal Bank of Scotland (LON:RBS) over mistreatment of small businesses in its restructuring division unnerved investors yesterday. The stock is underperforming the broader UK market amid estimates that the “dash-for-cash” scandal could cost the bailed-out lender £500 million this year alone.

 

RBS’ share price has fallen today, having lost 1.81 percent lower to 184.60p as of 10:05 BST. The stock is underperforming the benchmark FTSE 100 index, which is currently 0.45 percent up at 7,019.54 points. The bank’s shares have lost just under 43 percent of their value over the past year, and are down by more than 38 percent in the year-to-date.

 

Earlier this month, leaked documents showed that more than 12,000 companies were pushed into RBS’ controversial “turnaround” division — Global Restructuring Group (GRG) — in the wake of the 2008 financial crisis. In what was described by an RBS executive as “Project Dash for Cash”, staff were rewarded with higher bonuses based on fees collected for “restructuring” business customers’ debts.The files also showed that where business customers had not defaulted on their loans, bank staff could find a way to “provoke a default”. The findings have put pressure on the Financial Conduct Authority to reveal the results of its lengthy probe on the issue.

 

According to Investec, RBS could shoulder some of the GRG settlement this year. Analyst Ian Gordon said yesterday: “We think that both timing and amount remains highly uncertain, but we now model a £500 million charge in the fourth quarter of 2016.”

 

Gordon added that a victory in the US election for Hillary Clinton, who Investec now sees as a “shoo-in” for president, could weaken RBS’ position as it negotiates a settlement with the US Department of Justice for its role in selling toxic mortgage-backed securities before the financial crisis. The analyst lifted his forecasts for the settlement from £4.8 billion to £6.4 billion.

 

RBS is scheduled to post its third-quarter results on Friday. The update may show some investment banking benefit, but profits are likely to be weighed down by restructuring and legal costs. Estimates are pointing to a loss of £231 million for the third quarter, against profits of £952 million a year ago.

 

As of 10:44 BST, Tuesday, 25 October, Royal Bank of Scotland Group share price is 202.40p.