RBS Fine is a Drop in the Ocean

RBS has agreed to pay a fine of £14.5 million to the FCA after being charged with mis-selling retail mortgages in 2012

Erin Davis 28 August, 2014 | 11:20AM
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Royal Bank of Scotland (RBS) has agreed to pay a fine of £14.5 million to the Financial Conduct Authority to settle charges that when selling retail mortgages in 2012, the bank “failed to ensure that advice given to customer was suitable”.

Of the 164 sales regulators reviewed, only two were found to meet appropriate standards, and in some cases “highly inappropriate” advice was given. While we’re disappointed that RBS seems to have an endless supply of skeletons in the closet, we don’t expect this settlement to affect our fair value estimate rating for the no-moat bank for two reasons: First, the fine is small potatoes for the giant bank – is considerably less than 1% of shareholders' equity.

Second, and perhaps more importantly, while the scandal will further damage RBS’ beleaguered reputation, it is unlikely to be a roadblock to its strategy of becoming a retail- and commercial-focused bank given the U.K. banking conditions. The market is very concentrated – RBS and its top three competitors control about 75% of the retail banking market – and good reputations are hard to come by.

Lloyds Banking Group (LLOY), for example, has absorbed misconduct charges of more than £10 billion over the past several years. We expect misconduct to continue to be a material headwind for all U.K. retail-focused banks, not just RBS.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Lloyds Banking Group PLC46.48 GBP0.00Rating
NatWest Group PLC216.80 GBP0.00Rating

About Author

Erin Davis  is a senior banking analyst for Morningstar.