RBS’s Hester Says ‘Sins From Past’ Receding as Bank Has Loss
RBS’s Hester Says ‘Sins From Past’ Receding as Bank Has Loss
Simon Dawson/Bloomberg
Operating income at RBS’s investment banking, or global banking and markets, division doubled to 1.1 billion pounds from 527 million pounds in the fourth quarter of 2010. That was still down from 1.5 billion pounds in the year-earlier period.
Operating income at RBS’s investment banking, or global banking and markets, division doubled to 1.1 billion pounds from 527 million pounds in the fourth quarter of 2010. That was still down from 1.5 billion pounds in the year-earlier period. Photographer: Simon Dawson/Bloomberg
May 6 (Bloomberg) -- Colin McLean, chief executive officer of SVM Asset Management Ltd., talks about U.K. bank earnings and capital requirements. He speaks from Edinburgh with Maryam Nemazee on Bloomberg Television’s “The Pulse.” (Source: Bloomberg)
Royal Bank of Scotland Group CEO Stephen Hester
Munshi Ahmed/Bloomberg
Royal Bank of Scotland Group Plc Chief Executive Officer Stephen Hester.
Royal Bank of Scotland Group Plc Chief Executive Officer Stephen Hester. Photographer: Munshi Ahmed/Bloomberg
‘Sins From the Past’ Receding as Bank Posts Loss
Simon Dawson/Bloomberg
Royal Bank of Scotland Group Plc posted a bigger-than-estimated first quarter loss.
Royal Bank of Scotland Group Plc posted a bigger-than-estimated first quarter loss. Photographer: Simon Dawson/Bloomberg
RBS Posts Quarterly Loss on Government Insurance Plan Costs
Chris Ratcliffe/Bloomberg
The net loss increased to 528 million pounds ($866 million) for the three months to March 31 from 248 million pounds.
The net loss increased to 528 million pounds ($866 million) for the three months to March 31 from 248 million pounds. Photographer: Chris Ratcliffe/Bloomberg
Royal Bank of Scotland Group Plc (RBS) Chief Executive Officer Stephen Hester said the “sins from the past are receding” after the government-controlled lender posted a bigger-than-estimated first quarter loss.
“There are still a few of them with us, and there will be several more quarters obviously in which that receding happens,” Hester told reporters today. “As we tick off each of these items from the past, then that growing operating profit will become increasingly available to shareholders.”
The net loss more than doubled to 528 million pounds ($866 million) from 248 million pounds in the year-earlier period on charges for using a government insurance program for its riskiest assets. Operating profit rose to 1.05 billion pounds in the first quarter from 882 million pounds a year earlier. The stock rose the most in almost four months in London trading.
Hester said in February the lender will this year post its first annual profit since receiving the biggest bank bailout in the world. The lender, which received 45.5 billion pounds, has cut about 27,000 jobs and shrunk RBS’s balance sheet by almost a trillion pounds since Hester replaced Fred Goodwin as CEO during the financial crisis of November 2008.
The net loss missed the 14.4 million-pound median loss estimated by three analysts surveyed by Bloomberg. Still, profit from RBS’s British retail and corporate banking unit more than doubled to about 1 billion pounds in the first quarter. The lender’s insurance unit, the owner of Churchill and Direct Line, posted its first profit in five quarters.
‘Better Than Expected’
Operating income at RBS’s investment banking, or global banking and markets, division doubled to 1.1 billion pounds from 527 million pounds in the fourth quarter of 2010. That was still down from 1.5 billion pounds in the year-earlier period.
“The insurance division and the global markets division were quite encouraging,” Colin McLean, CEO of SVM Asset Management Ltd. in Edinburgh, said in an interview with Bloomberg Television’s Maryam Nemazee. “The market will give RBS the benefit of the doubt that they are turning it around.”
The stock rose 5.6 percent to 42.74 pence in London today for a market value of 46.8 billion pounds. The taxpayer paid 50.2 pence a share for its 83 percent stake in the lender.
Barclays Plc last month posted a decline in profit in the first three months of the year as investment banking revenue tumbled. Lloyds Banking Group Plc, Britain’s biggest mortgage lender, yesterday posted a first-quarter net loss of 2.4 billion pounds on costs for compensating clients that were improperly sold loan insurance.
Customer Compensation
A U.K. court last month decided banks may have to pay compensation to customers improperly sold PPI, used to cover payments on credit cards and mortgages in case of illness or unemployment. The British Bankers’ Association and its members will decide in coming days whether to appeal, Hester said.
RBS said today the cost of following Lloyds and paying compensation “could prove to be material.” It didn’t provide a figure. The lender’s share of the PPI market was about a third of Lloyds’s, according to Hester. RBS may pay about 1 billion pounds in redress, said Ian Gordon, an analyst at Exane BNP Paribas with a neutral rating on RBS.
RBS was the only British bank that used the government’s Asset Protection Scheme during financial crisis to limit losses from 282 billion pounds of its most toxic assets.
Under the program, any improvement in the perceived credit quality of the assets costs RBS money. The bank logged a 469 million-pound APS charge in the first quarter, after a 1.1 billion-pound charge for 2010. The bank also pays a 700 million- pound annual fee to the government for using the program.
‘Accounting Noise’
RBS wants to exit the APS at the earliest possible moment, Hester said today. The lender is unlikely to leave before 2012, a person with knowledge of the talks said in January.
RBS also took a charge of 480 million pounds on the fair value of its own debt, compared with a charge of 169 million pounds in the first three months of 2010.
“Aside from the accounting noise, we see the results as broadly in-line,” Gordon wrote in an e-mail today.
Bad loan provisions declined to 1.95 billion pounds, from 2.68 billion pounds, the company said. In Ireland, its Ulster Bank had a loss of 377 million pounds as loan losses in the division more than doubled to 461 million pounds. RBS said it expected “high” impairments on its Irish assets to persist.
‘Improving Trend’
“When you take away the quarterly volatility, and if you draw a straight line through the results our next eight quarters, I think you’ll see an improving trend at all levels,” Hester said today.
The bank’s net interest margin, the difference between what banks earns on loans and pays for its funding, improved 1 basis point to 2.03 percent in the first quarter. Lloyds said yesterday margins were narrowing.
The government may begin to sell its stakes in Lloyds and RBS next year to create a one-time budget windfall before the next election, four people familiar with the talks said in March.
The figures “represent another step in the right direction for RBS, with the bank moving towards the end game of surplus capital being used to retire” the government’s stake, said Gareth Hunt, a banking analyst at Investec Securities in London.
To contact the reporter on this story: Gavin Finch in London at gfinch@bloomberg.net
To contact the editor responsible for this story: Edward Evans at eevans3@bloomberg.net
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