RBS profits more than double to £1.6BN with bumper dividend providing welcome windfall for the Treasury – but lender still issues Brexit warning
- The bank’s bottom line profits more than doubled from £752m to £1.62bn
- The dividend for the year came in at a total of 13p a share
Royal Bank of Scotland saw its profits more than double last year, providing shareholders with a dividend for the first time in a decade.
The majority-state owned lender announced an annual dividend of 3.5p a share and a special dividend of 7.5p a share, taking total payouts, including an earlier interim dividend, to 13p per share.
But, the bank’s chief executive, Ross McEwan, warned it faced a difficult economic environment amid a ‘heightened level of uncertainty related to ongoing Brexit negotiations.’
Bumper dividend: RBS dished out a dividend of 13p a share to investors for last year
The lender said political turmoil meant it could struggle to hit its target of slashing its cost to income ratio to less than 50 percent as planned by 2020.
RBS said it was seeing large corporate customers ‘delay investment decisions until they have more detail on the outcome of the Brexit process.’
The lender said: ‘We recognise our responsibility to provide support at a highly uncertain time.’
‘It remains to be seen what fiscal and monetary policy levers the Bank of England will pull in the event of an economic downturn, but lower interest rates for longer would affect the bank’s ability to deliver significant income growth.’
Mr McEwan’s total pay package rose from £3.5million to £3.6million last year.
The bank, which the Government still owns a 62.4 per cent stake in, saw bottom line profits more than double from £752million to £1.62billion, marking a 116 per cent increase.
Full year pre-tax operating profit rose by 50 per cent to £3.4 billion.
It marks the bank’s second year in the black following a decade-long run of stinging losses, during a period marred by crisis-era legacy and conduct charges.
The Government will also pocket £977million as RBS coughed up its second dividend since its £45billion bailout a decade ago.
The cash will be given to UK Government Investments, which manages the taxpayer’s stake in the lender.
In the money: RBS boss Ross McEwan saw his pay package rise from £3.5million to £3.6million last year
RBS is hoping the process of returning to private hands can be stepped up but its shares remain well below the 502p paid back in 2008 by the-then Labour government.
The lender started dishing out dividends last summer after agreeing with US authorities a penalty of £3.7billion for the mis-selling of pre-crisis mortgage-backed securities.
In the last year, RBS achieved cost savings of £278million, but forked out conduct and litigation charges totaling £1.3billion.
Ross McEwan said: ‘This is a good performance in the face of economic and political uncertainty, with bottom line profits more than double what we achieved the previous year.
‘We are also announcing an intention to pay back more capital to shareholders and almost £1bn is set to be returned to UK taxpayers for 2018.
‘With strong capital and liquidity levels, we are well positioned to support the UK economy. Our total lending to business and commercial customers reached over £100bn at the end of 2018.’
The bank’s results reveal that in-branch transactions fell by 20 per cent to 132million in the last year. Use of cheques fell by 18 per cent to 211million., while calls to the bank’s contact centres fell by 11 per cent.
Payments via the bank using mobile phone banking increased by 43 per cent to 191million.
In May last year, RBS announced plans to close 162 branches across England and Wales.
Shares in RBS are down 0.85 per cent or 2.05p to 239.55p.
RBS: Views from the City
Ed Monk, associate director from Fidelity Personal Investing, said: ‘RBS is at last putting the dark days of the financial crisis behind it, with results today confirming remaining legacy issues have now been settled and showing a doubling of attributable profits to £1.622bn and a dividend rise that were ahead of forecasts.
‘It suggests the point is soon coming when the Treasury will seek to begin selling its giant stake back into private hands.
‘Risks around Brexit remain, however, although banking licenses in Germany and the Netherlands seem to be mostly in place to keep euro clearing flowing should there be a hard Brexit.
‘RBS also made clear that cyber attacks were likely to have some impact, and warned its target of keeping costs to less than 50% of income by 2020 now looks challenging.’
David Madden, an analyst at CMC Markets, said: ‘The government is still the majority shareholder in the bank, and it plans to sell-off its remaining stake by 2024.
‘The fact that Westminster is unwinding its shareholding and has a strategy to bring its shareholding to zero indicates their belief in the bank’s ability to stand on its own two feet by then.
‘Some banks required government assistance during the credit crisis, and many returned to robust health, and some investors believe that RBS is on that long-term path.
‘Recently, Mark Carney, the Bank of England cut the growth outlook for the UK, and warned that inflation could slide further in the near-term, and the pushed down the prospect of an interest rate hike. Banks have higher earning potential in higher interest rate environment, and this does not bode well for RBS given the amount of domestic lending it carries out.’
Neil Wilson, chief market analyst at Markets.com, said: ‘RBS delivered a stellar set of numbers and a forecast-beating dividend payout to investors, but Brexit and other factors mean it will fall short on its cost cutting target.’