RBS Losses: What the Analysts Say

RBS announced a loss of £9 billion yesterday - bringing cumulative losses since the credit crisis to nearly £49 billion. But analysts believe there could be a dividend by 2016

Erin Davis 28 February, 2014 | 9:48AM
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As expected, Royal Bank of Scotland (RBS) reported a huge loss and poor underlying performance for 2013. The bank reported a net loss of £9 billion, which included £10.4 billion of regulatory, legal, restructuring, and impairment charges. The loss was the bank's second largest since the financial crisis and brings cumulative losses to nearly £49 billion.

Underneath these huge losses was the subpar performance of RBS' core operations; underlying return on tangible equity was just 2.5%. We were shocked by management's description of the complexity remaining in RBS' operations after six years of restructuring—RBS currently has 247 ongoing restructuring projects, 109 different credit card options, and processes 7.8 million payments manually each year - and the additional clean-up costs will be larger than we had anticipated.

Still, our long-term expectation that the bank will earn a return on tangible equity of about 10% remains intact, and we plan to reduce our fair estimate for the no-moat bank only modestly. RBS sketched out its restructuring plans, and we generally like what we see. The bank will divide its operations into thee businesses (down from seven) – personal and business banking, commercial and private banking, and corporate and institutional banking – each of which will consume roughly one third of risk-weighted assets. It plans to focus much more attention on customer service, an area that we think has been too long neglected as RBS fought one fire after another.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
NatWest Group PLC216.80 GBP0.00Rating

About Author

Erin Davis  is a senior banking analyst for Morningstar.