RBS warns of 'another tough year' dealing with legacy of misconduct

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Royal Bank of Scotland warned that it faced another year of pain in which fines for market rigging, mis-selling and litigation would continue to dog the bank, deferring any hopes that it can be returned to the private sector.

Ross McEwan, the chief executive, described another “tough” year after reporting a £446m loss in the first quarter, as RBS set aside another £856m to cover the cost of misconduct charges.

The losses at the bank, which is 80 per cent owned by the British taxpayer, compared with a £1.2bn profit at the same point last year.

RBS, which has already paid out hundreds of millions of pounds in fines, is expecting a multimillion-pound penalty from the US Department of Justice as early as this month, along with other banks, over its role in rigging the foreign exchange markets.

Mr McEwan said that as he tried to rebuild the bank he would not tolerate the low standards of behaviour that were rife at RBS before.

“This is going to be another tough year,” he added. “There are still many conduct and litigation hurdles looming on the horizon. I am looking forward to the day we can focus entirely on the future and not deal with any legacy issues.”

Of the £856m set aside for litigation during the current quarter, £334m went towards covering investigations into the alleged manipulation of foreign-exchange markets. A further £100m payment was incurred to cover the mis-selling of payment protection insurance, while the bank has earmarked £257m to cover potential mis-selling of packaged accounts. Restructuring costs of £453m also damaged the lender’s attempts to become profitable. It has not made a full-year profit since its state bailout in 2008.

In February, RBS outlined its objective to sell off or run down operations in 25 of the 38 markets in which it operates. Banking experts believe the restructuring could lead to as many as 14,000 people leaving the group, although Mr McEwan would not be drawn on job cuts.

RBS has already made a £277m writedown on the value of its offices in Stamford, Connecticut, where it boasted the world’s largest trading floor.

Mr McEwan said RBS was making good progress towards creating “a safer, stronger” bank.

However, the overhaul has been hit in the past month by high-profile departures including the restructuring chief Rory Cullinan and John Maltby, who was in charge of Williams & Glyn, the “challenger” bank being spun out of RBS.

Adjusted operating profit – which strips out the cost of restructuring, litigation and misconduct charges – was up 16 per cent to £1.6bn, compared with the first quarter last year.

The bank also strengthened its balance sheet so that it is more resilient to financial shocks in the future, with its capital buffer reaching 11.5 per cent; it has a target of 13 per cent that it expects to achieve by the end of 2016. It also reported its strongest mortgage business for 15 months in March.

Mr McEwan was unable to comment on when dividend payments might be resumed or when RBS might be prepared for sale by the Government. Before dividends can be paid, the bank must return £1.3bn to the Government.

RBS shares fell 11p, or 3 per cent, to 338.5p last night.