Royal Bank of Scotland has ended a nine-year streak of annual losses, but celebrations were tempered by additional conduct charges, mixed results in the fourth quarter and the bank’s failure to settle a long-running US legal action.
The £752m attributable profit for 2017 reported on Friday was better than the £592m loss expected by analysts, but only because RBS had been expected to take a big financial hit in the fourth quarter to settle a mortgage mis-selling suit with the US Department of Justice.
That case is still outstanding; chief executive Ross McEwan told reporters the bank could give “no update” on how negotiations were going beyond that RBS hoped to settle in 2018.
Shares in RBS dropped 4 per cent in early London trading, making them the worst performers on the benchmark FTSE 100 index. Ian Gordon, banks’ analyst at Investec, attributed the fall to “more costs – both “underlying” and restructuring”.
The bank said it would invest an extra £1.5bn in restructuring, innovation and digital over the next two years, Mr Gordon said that made its 2020 return target “feel even less plausible today, even if one happened to believe in it already (which I didn’t).”
Still, Mr McEwan hailed the return to profit in 2017 as “symbolic moment” that staff had worked “very very hard for” and said it was necessary to invest to improve the bank even if that meant higher costs in the short term.
“With many of our legacy issues behind us, the investment case for this bank is much clearer and the prospect of returning any excess capital to shareholders is getting closer,” he said.
“Whether or not the DoJ comes in 2018, the underlying performance has really improved,” Mr McEwan added when asked whether profitability would prove fleeting once the DoJ fine hit.
Rival Lloyds celebrated its improved results for 2017 with a £1bn share buyback, while Barclays promised it would consider buybacks and higher dividends “over time”.
RBS has limited flexibility to increase investors payouts while the DoJ issue is outstanding.