RBS: Ross McEwan promises brighter future, but when?

Channel 4, 24.02.17

 

Another year, another grim performance from RBS, this time racking up a further £7 billion in losses, more than triple the £2 billion from a year ago. Capital ratios – a measure of a bank’s strength – are down and litigation and misconduct costs are up. In short, all the key metrics are moving in the wrong direction.

 

But yet again, the bank’s boss, Ross McEwan, is promising a brighter future for RBS is just around the corner. Once these final fines have been paid, and once this last batch of compensation has been awarded and once Williams and Glynn has been reintegrated back into the business…and once…and once…

 

The problem for Mr McEwan is there’s a large element of déjà vu to today’s announcement. In fact, for every one of the past nine years, he or his predecessor has used a bad results day to reassure investors of good times to come. Only those good times have failed yet again to materialise.

 

Mr McEwan was as confident as anyone can be about the potential size of fines in the pipeline and in setting aside more than £10 billion to cover their costs – including the costs of yet more job cuts and restructuring – he’s hoping he’s got as close as damn it to the right figure. But the reality could be very different.

 

The US Department of Justice could fine RBS substantially more than the $8 billion or so that the bank has set aside. Likewise, the £400 million allocated to compensate victims for claims of mistreatment inside the bank’s Global Restructuring Group could end up costing much, much more. Today we spoke to one GRG business which is now suing RBS for £50 million alone. And there were circa 12,000 businesses that entered GRG during and after the financial crisis. It doesn’t take a genius to see that if any of those outstanding fines and settlements come in substantially higher than RBS has accounted for (which historically has usually been the case), then RBS will be forced to dig deeper.

 

And this is important for two reasons. Firstly because it will push back the date, yet again, that RBS expects to make a profit. In a bold, new prediction this morning, the boss said 2018 would be THE year. But if fines during 2017 are much larger than expected, those losses could well continue into the following year as well.

 

And depending how much bigger those losses are, RBS may or may not be able to pay for them. It only has so much equity capital left as a cushion. So if the bad news keeps coming, that cushion could get very thin indeed and may need plumping up. Which to you and me means going cap in hand to the taxpayer, something that would be abhorrent to the Treasury nearly a decade after it was forced to bail the bank out. So what are the other options? Force the bank to be broken up? Sell off more and more of its constituent parts (there isn’t much more to sell). Let it go altogether? None of the options are pretty.

 

So for Ross McEwan’s sake, he’d better hope his latest forecasts are right.

 

One last figure to chew on. Today’s latest losses bring the total, since 2008, to £58 billion. And there’s more to come.

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