Royal Bank of Scotland Group Plc, Chairman Philip Hampton said he couldn’t predict when the bank, the biggest U.K. government-owned lender, will become profitable.
“I can’t give you a clear and precise indication” when the bank will return to profit, Hampton told investors at the annual general meeting in Edinburgh today. “All I can say is that our performance in 2009 was better than 2008 and I expect that significant progress to continue this year.”
The comments from RBS contrast with those from Lloyds Banking Group Plc, which yesterday declared it was profitable in the first quarter as bad loan provisions declined. Non-core impairments and writedowns are likely to remain high this year and will “once again” weigh against strong core operating profit, RBS said today.
“RBS has begun its transition from problem to opportunity - an opportunity for the U.K. government, without whose decisive support we would not be here today,” said Hampton. “Even if the economic outlook is both clearer and I think better than it was a year ago, we are under no illusions that we are out of the woods,” Hampton said in the advance copy.
RBS has surged more than 90 percent since the start of the year, pushing the government’s 45.5 billion pound ($70 billion) bailout investment into profit. The government, which owns about 83 percent of the bank, has a paper gain of about 4 billion pounds in the bank.
Shareholder Return ‘Appalling’
“My ambition is to look back and have paid the taxpayer in full and at a profit, said Chief Executive Officer Stephen Hester. “These sums can make a very big dent in the public deficit.”
The bank has posted losses of about 28 billion pounds in the past two years, following its acquisition of ABN Amro Holding NV.
RBS’s shareholder return “has been appalling,” over the past decade, Hampton told shareholders. “We are among the worst, but we are not the worst, as some have disappeared altogether,” said Hampton. RBS’s “exposure” to Greece is manageable and stands at less than 1 billion pounds, he said. The bank said it has 1.4 billion pounds of Portuguese debt.
The bank agreed last month to make 50 billion pounds of new funds available to businesses over the next 12 months.
“The political imperative of stretching targets is understood, but although we will make the money available, we cannot invent credit demand,” said Hampton.
Incentive Plan Backed
Shareholders including U.K. Financial Investments Ltd., which manages the government’s stake, today backed the bank’s plan to introduce a new long-term incentive plan for executives. RBS has said it would consider raising the share price target at which managers receive payouts.
The lender fell 1.9 percent to 54.95 pence in London trading today, the biggest decline among five U.K. banks in the FTSE 350 Banks Index.
Separately, RBS has halted plans to sell its aviation finance unit, according to a person with knowledge of the situation. RBS hired Goldman Sachs Group Inc. to advise on a possible sale of the unit last year.
“We have a significant number of transactions running and only conclude where we see value for our shareholders,” the company said in a statement today.