LONDON: State-backed Royal Bank of Scotland expects to be able to put the fallout from past misconduct behind it over the next 18 months, Chief Executive Ross McEwan said yesterday.
Now a year in the job, the 57-year-old New Zealander is battling to re-build the reputation of the bank, which was rescued by a £45bn ($73bn) government bailout in 2008 and has since been plagued by scandals ranging from the alleged manipulation of benchmark interest rates to the current international probe into foreign exchange markets.
The bank, which was fined $612m over the interest rate affair last year, is one of six banks now in talks with Britain’s financial regulator to settle allegations its staff were involved in the rigging of the global $5 trillion-a-day currency market.
McEwan told a financial industry conference in London on Tuesday that RBS was braced for further litigation and conduct costs over the next 18 months but would then be in a position to look at restarting dividend payments.
“I look forward to getting to a point in the next 18 months or so where the past conduct issues are substantially behind us.
We need to get ourselves through those before we see a real path to paying a sustainable dividend,” he told the Bank of America Merrill Lynch Annual Banking and Insurance CEO conference.
McEwan said in July that the currency market investigation could prove a bigger problem for banks than the probe into whether banks tried to manipulate benchmark interest rates such as the London interbank offered rate (Libor).
RBS is also being investigated by regulators looking into its treatment of struggling small British firms and its selling of bonds backed by residential mortgages in the United States. Separately it has set aside 4.6 billion pounds so far to compensate customers mis-sold loan insurance and small businesses wrongly sold interest rate hedging products.
Shares in RBS rose by as much as 5 percent on Tuesday after the bank also said it expected to report an improved third-quarter performance but fell back to trade 1.6 percent higher at 367 pence by 1337 GMT. That leaves taxpayers still sitting on a loss of 12 billion pounds, making a sale of the government’s 80 percent stake unlikely in the short term.
However, Jefferies analyst Joe Dickerson said RBS could be in a position to resume dividend payments in 2015, which in turn would lift the share price and improve the prospects of the bank returning to private ownership.
“I think that they’ll settle the bulk of their litigation exposure well within an 18-month timeframe ... that leads me to believe that they could probably pay an interim dividend next year,” he said.
Dickerson expects forecasts for RBS’s profit to increase by at least 15 percent for the period between 2014 and 2016.
The bank said in a trading statement that in its third-quarter results it would release 800 million pounds from provisions set aside to cover losses on bad loans, after an improvement in economic conditions, especially in Ireland.
However, revenues in its corporate and institutional banking unit, which includes its shrunken investment bank, had been weaker than expected in the quarter.
Reuters
