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RBS receives green light for post-Brexit EU hub as quarterly profits miss forecasts

RBS said it has set aside £100mln to deal with the “more uncertain economic outlook” ahead of Brexit
RBS
RBS paid its first dividend in 10 years in August

Royal Bank of Scotland Group PLC (LON:RBS) said it has received approval from the Dutch regulator to use Amsterdam as its post-Brexit hub in the European Union as it reported a 14% rise in third-quarter profits that missed expectations. 

In morning trading, shares fell 4.8% to 223p each.

The 62.4% state-owned bank plans to repurpose its NatWest Markets arm in Amsterdam and turn the office into its EU base after the UK leaves the bloc.

RBS already holds a licence banking licence in the Netherlands following its ill-fated takeover of Dutch bank ABN Amro in 2007 but will expand its presence there to ensure it can continue business across the EU in case of a no-deal Brexit scenario.

Profits miss, income beats

The lender made the announcement as it posted a profit attributable to shareholders of £448mln for the third quarter to September 30, up from £392mln a year ago. However, it was less than the £502mln profits expected, according to company-compiled consensus forecasts.

Total income increased to £3.6bn from £3.2bn last year as growth in non-interest income offset a decline in net interest income. That was ahead of analysts' estimates of £3.3bn.

The net interest margin – a key measure of banks’ profitability – fell to 1.93% from 2.12% a year ago amid tough competition in mortgage lending. 

READ: RBS's dividend signals a return to strong dividend growth for banks but elsewhere profit warnings are a concern

Litigation and conduct charges grew to £389mln from £125mln as the company took an extra £200mln provision for a higher-than-expected level of claims related to the payment protection insurance (PPI) scandal. RBS has set aside £5.3bn for PPI claims to date.

RBS takes £100mln impairment to deal with Brexit 

RBS said it also took a further £100mln impairment charge to deal with the “more uncertain economic outlook” and an additional £60mln impairment in the Irish business related to ongoing sales from the loan book to reduce the level of non-performing loans.

"This serves as a reminder that the bank’s fortunes are very heavily influenced by the domestic economy, and by extension, so is its share price," said Laith Khalaf, senior analyst at Hargreaves Lansdown

"To that end, the Treasury’s holding in RBS is an extra dose of exposure to the UK economy over and above the tax revenues it receives from UK individuals and companies. Little wonder then the Chancellor wants rid of it, though at today’s price, he’s left staring down a hefty loss on the bailout."

The government sold a 7.7% stake in RBS in June and has said it intends to sell £15bn worth of RBS shares by 2023. RBS has been majority owned the taxpayer since its £45bn government bailout in 2008 at the height of the financial crisis.

RBS reaffirms guidance, capital position strengthens

RBS ended the third quarter with a common equity tier 1 capital ratio of 16.7%, compared to 16.1% at the end of June as risk-weighted assets fell to £194.5bn from £198.8bn over the period.

RBS left its guidance for the full year unchanged.

In August, the bank paid its first dividend in 10 years after drawing a line under the last of its major legacy issues by paying a US$49bn settlement with the US Department of Justice to end an investigation into the sale of mortgage-backed securities in the lead up to the financial crisis.

The lender paid an interim dividend of 2p per share.  

"That 2p divided wasn’t much in financial terms, but it was monumental in terms of improving the way the bank is perceived. A robust balance sheet and enough cash to comfortably pay out a dividend projects a positive image of the finance house.

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