The bank – bailed out by £45.5bn of taxpayer money during the financial crisis of 2008 – has unveiled a special dividend of 7.5p a share on top of a final ordinary dividend of 3.5p per share.
That means the Treasury, which owns 62.3% of RBS shares, is in line for an £825mln windfall.
The payout, which is larger than many in the City had been expecting, comes on the back of a hugely profitable year for RBS.
The lender reported an operating profiting profit before tax of £3.36bn in the 12 months ended 31 December, 50% higher than the £2.24bn it racked up last year. Income slipped to £6.28bn from £6.48bn in 2017.
Cost-cutting was a major factor behind the profit surge. RBS reduced its operating expenses by another £278mln in 2018, meaning it has cut more than £4bn from its cost base since 2013.
Customer satisfaction still lagging behind rivals
“2018 was a year of strong progress on our strategy - we settled our remaining major legacy issues, paid our first dividend in ten years and delivered another full year bottom line profit,” said chief executive Ross McEwan.
“However, while our financial performance is more assured, we know that a significant gap remains to achieving our ambition to be the best bank for customers. We are fully focused on closing this gap.”
RBS, which paid out a £240mln interim dividend back in October, its first since the financial crash, has started returning money to shareholders of late after swinging back to a profit in 2017 and settling a US$5bn mortgage misselling charge with the US Department of Justice.
The FTSE 100 lender also recently obtained a “clear pass” in the Bank of England’s latest stress tests, meaning it should be able to withstand another severe economic shock.
Lack of top-line growth
“Restructuring costs and misconduct charges are disappearing in the rear-view mirror while rising profits combined with a nice dividend will be applauded by shareholders,” said Laith Khalaf, senior analyst at Hargreaves Lansdown.
“However, in a weak economy, the top line isn’t growing, once you discount one-off items. Low interest rates continue to be a headwind for the core business, and with economic growth slowing, the prospect of some relief from tighter monetary policy has receded.
Khalaf added: “RBS will continue to strip out costs, partly through digitalisation, but there’s only so far this can take the bank’s profitability.
“It has made great strides forward in recent years, but its transformation from an ugly duckling into a beautiful swan won’t be complete until economic conditions improve, and the government stake in the bank is eliminated.”
RBS shares are up 1.3% to 244.8p in early deals on Friday.
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