RESTRUCTURING costs and money set aside to cover fines for past misconduct turned operating profits at RBS into heavy losses for the first quarter of 2015.
Figures released yesterday showed an attributable loss of £446 million for the first quarter, included restructuring costs of £453m and £856m of “litigation and conduct charges”. But strip away those figures and operating profits at the Edinburgh-based bank, which is 79 per cent owned by the British taxpayer, were actually up by 16 per cent.
Operating profit was £325m, compared with a profit of £1,283m in the first quarter of 2014 and a loss of £375m in the period from October to December 2014.
Excluding restructuring, litigation and conduct costs, operating profit was £1,634m, up 16 per cent from the same period last year, with RBS saying it benefited from “generally benign credit conditions”.
It is not certain how the losses will affect RBS’s strategy of withdrawing from many foreign activities to concentrate on UK and European business, but the ongoing penalties for misconduct are certainly harmful, with the bank having set aside more than £5.4 billion to pay for possible fines, court actions and charges.
The bank said litigation and misconduct issues include advanced settlement discussions regarding the criminal investigation being conducted by the department of justice in the USA and the bank is also in discussions with other financial regulatory authorities.
The bank stated: “RBS expects that it will incur financial penalties in conjunction with any such settlements.”
Other elements of RBS’s £856m of conduct charges included £257m for mis-selling products, such as packaged bank accounts, plus a further £100m going towards the ongoing compensation bill for payment protection insurance mis-selling.
In the UK, it provided 8 per cent of gross new mortgage lending in the first quarter (Q1) of 2015, in line with historical market share, delivering £0.4bn net mortgage growth. New mortgage applications accelerated towards the end of quarter with volume in March up 10 per cent year on year. March was the highest month for mortgage application numbers and volumes since the start of 2014. Mortgage balances were £103.6bn, 3 per cent higher than at the end of Q1 2014.
Business and personal loans saw positive momentum in the quarter as business and consumer confidence continue to improve, while in commercial banking net new loan growth was £1.3bn. The bank stated: “RBS has continued to make good progress on its transformation plan, with further steps taken to improve resilience and simplicity in the bank’s structures and systems.”
The mortgage platform was upgraded and the number of mortgage advisors increased to 835 in UK PBB (up 91, or 12 per cent, compared with start of 2015 and up 205, or 33 per cent, compared with start of 2014) which have increased lending capacity. Other highlights for the quarter included RBS becoming the first UK-based bank to enable customers to log in to their mobile banking app using only their fingerprint, recording over 22 million logins since its launch.
In its statement to the Stock Exchange, RBS, which was particularly pleased with its mortgages business, reported an “attributable loss of £446m for the first quarter of 2015”, but added that is making “good progress towards its stated 2015 targets, with further steps to build a bank that is stronger, simpler and better for both customers and shareholders”.
In partnership with Glasgow-based Entrepreneurial Spark, RBS launched the first of eight entrepreneurial accelerator hubs in Birmingham, providing free space, financial support and mentoring to small businesses.
The bank also announced the opening of its headquarters in Edinburgh to entrepreneurs and enterprise. The Entrepreneurial Centre will house business organisations including Entrepreneurial Scotland, Business Gateway and the Prince’s Trust Scotland as well as up to 80 entrepreneurs.
RBS remains committed to delivering £800m in cost reductions in 2015, notwithstanding the increase in the UK bank levy.
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