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RBS shares rise as it looks to pay first dividend since financial crisis, posts first half profit

RBS has not paid a dividend since 2008 during the financial crisis when it was bailed out with £45mln of taxpayer money

RBS had some good news for its long-suffering shareholders

Royal Bank of Scotland Group PLC (LON:RBS) on Friday announced its first dividend since the financial crisis after drawing a line under its last major litigation issues.

The bank said it would pay an interim dividend of 2p as it reported an attributable profit of £888mln for the six months ended June 30, down from £939mln last year, after agreeing to pay US$4.9bn to settle a US investigation into the sale of mortgage-backed securities between 2005 and 2007.

RBS has not paid a dividend since 2008 during the financial crisis when it was bailed out with £45mln of taxpayer money. The settlement with the US Department of Justice in May paved the way for a long-awaited return of cash to its shareholders. It also contributed to the government’s decision to sell 925mln of its shares in RBS in June, reducing its stake to 62.4% from 70.1%.

READ: RBS shares weak as UK government confirms 925mln shares sold at 271p each

RBS said the interim dividend is subject to the timing of the finalisation of its settlement with the DoJ and will make another at the “relevant time”.

The lender took a £1.04bn charge in the first half for the settlement. But since the fine was much lower than expectations of up to US$12bn, RBS released £241mln of the provision it set aside for litigation.

The group reported total income of £6.7bn for the period, compared to £6.9bn, with net interest income falling to £4.3bn from £4.4bn. The decline reflected the impact of the adoption of IFRS 9 accounting standards, lower income in the NatWest Markets investment banking arm and a £156mln gain on the disposal of its stake in payments and cashpoint processing firm Vocalink last year.

The net interest margin fell 11 basis point to 2.81% due to fierce competition in the mortgages market.

Despite a £405mln increase in litigation and conduct costs, operating expenses fell by 2.4% to £117mln as RBS slashed costs as part of its restructuring efforts.

The restructuring, under chief executive Ross McEwan, has involved shutting down branches and cutting jobs to save money and improving its digital offering to fend off competition from established rivals and tech start-ups.

Earlier this year, the bank posted its first annual profit in a decade on the back of the overhaul. RBS left its guidance for the current year unchanged.

Small steps, rather than long strides

Richard J Hunter, head of markets at interactive Investor commented: “RBS continues to take small steps, rather than large strides, but even so is demonstrating something of a return to health.”

He added: “Whilst prospects for the bank have moved on over the last year, the share price has not. It is virtually flat over the period (down 0.3%) as compared to a 2.2% hike for the wider FTSE100, and any rise in the price following the part-disposal of the government stake has been erased as the shares have slipped 7% over the last three months.

“Nonetheless, there has been progress in terms of the market consensus, which has recently nudged higher to a buy recommendation on further recovery potential.”

In late morning trading, RBS shares were 2.9% higher at 257.3p.

 -- Adds analyst comment, share price --

Quick facts: Royal Bank of Scotland

Price: 121.85 GBX

Market: LSE
Market Cap: £14.77 billion

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