The share price of RBS (LSE: RBS) (NYSE: RBS.US) fell 4% to 338p in early morning trade after the bank reported a pre-tax loss of £8.2bn in 2013. Since it was bailed out in 2008, the 81% taxpayer-owned bank has racked up £40bn in losses, and on that basis won’t return to full private ownership any time in the immediate future.
These are some quick takeaways:
1. You knew this was coming.
The losses are attributable in part to provisions for litigation and mis-selling costs — relating to mortgage-backed securities sold before the financial crisis and the PPI scandal — which for the full year amounted to £2.4bn and £900m respectively.
2. Wait, there’s profit somewhere?
If you don’t factor in ‘bad bank’ and legacy costs of £4.8bn, then the group actually made an operating profit of £2.5bn. The internal bad bank was set up to house some £38bn of troublesome loans, a figure that has been reduced by around a quarter to £29bn. Peering beyond what obviously needs to be redressed, there is a good core banking division there, but the £2.5bn in operating profit is still 15% down on 2012.
3. Fixing its capital position.
As part of an effort to meet capital targets RBS will sell its remaining 28% stake in the Direct Line insurance company. Direct Line, which is the UK’s biggest car insurer, was no longer considered an operating segment by RBS after the bank sold two tranches of shares in 2013. After the forthcoming sale of its 423m shares is complete RBS will strengthen its capital buffer by around £1bn.
4. Much ado about…
Nick Clegg stated in a television interview that loss-making RBS “shouldn’t be dishing out ever larger amounts in pay and bonuses”. And they didn’t — the bonus pool was down 15% to £576m on the previous year’s total. Still, it’s enough to be a headline figure, so there will be outcry.
5. This is what’s to come.
Recent comments by chief executive Ross McEwan have placed retail banking at the centre of a new strategy. In order to get customer service levels — an element that has failed in the recent past — back to being of adequate quality, the bank will pay more in restructuring costs over the next two years. Mr McEwan today stated: “We are clear on our purpose as a bank: to serve customers well, but we are yet to operate in a way that means we can really deliver on this. Delivering on our purpose will mean running the bank differently.”
Should I ‘buy’ RBS?
RBS revealed that talks with the government are “well advanced” over removing the necessary barriers to restore the dividend. Over the medium term this is a possibility.
In 2014 analysts are expecting RBS to report earnings per share of 22p, against this year’s loss, so shares in RBS may trade on a forward P/E of 15.
