Royal Bank of Scotland set to report up to £8bn losses for 2013

Unscheduled trading statement to reveal bank, 81% owned by taxpayer, hit by extra £2.9bn over conduct and mis-selling issues

Royal Bank of Scotland is facing a row over its pay policies after a fresh hit for legal bills and mis-selling scandals put the bailed-out bank on track to report up to £8bn in losses for 2013.

Even though its nine-strong top management team said they would waive any bonuses, given the scale of the losses, the bank gave the strongest indication yet it would sidestep the EU bonus cap by asking shareholders' permission to pay bonuses worth 200% of salaries – double the size of the restriction imposed by Brussels.

Chairman Sir Philip Hampton insisted RBS had to keep paying competitively. He spoke at a hastily convened conference call caused byan unscheduled trading statement in which the 81% taxpayer-owned bank revealed it would incur an extra £3bn of losses for conduct-related matters over the US sub-prime mortgage crisis and mis-selling o fpayment protection insurance and interest rate swaps.

The additional costs come on top of £4.5bn losses from the creation of a mini-bad bank inside RBS and, according to estimates, could drive the bank to losses of around £8bn by the time it reports full-year results at the end of next month.

If the loss is on that scale it would mean RBS has incurred more than £40bn of losses since its 2008 bailout – almost as much as the £45bn taxpayers pumped in to rescue it.

The move appears to push back any prospect of chancellor George Osborne selling off any of the taxpayers' stake, even as he prepares to press ahead with the sale of Lloyds Banking Group as soon as next month.

The extra £3bn includes £1.9bn for various claims and past conduct issues facing the bank – most likely the potential cost of a settlement over sub-prime mortgages in the US – plus £465m for PPI mis-selling, another £500m for interest rate swap mis-selling, and another unspecified £200m. The latest costs bring the total PPI bill to £3.1bn and swaps mis-selling to £1.3bn.

Ross McEwan, who took over as RBS chief executive on 1 October from Stephen Hester, had already said he would not take a bonus for 2013 and now the rest of his eight-strong executive committee will also forgo their multimillion-pound payments.

The New Zealander, promoted from running the retail bank after Hester's sudden departure, said the scale of the costs incurred from past mistakes had not been expected at the time of the bailout.

"This is about leadership. I know this team is not responsible for the past mistakes but we are the leaders running the company now and have to show we take accountability seriously," he said, in reference to the move to block bonuses for the top management team.

But the bank may face hurdles in its plans – still being finalised – over pay in light of the EU bonus cap that comes into effect for bonuses paid this time next year. The cap restricts bonuses for the most senior staff to 100% of salary, but can be lifted to 200% of salary if shareholders approve.

Hampton said: "We obviously need to be sensitive to our shareholding structure and the political and media issues around that, but the ability to pay competitively we think is fundamental to the prospect of getting to where we need to be."

Labour has already called on Osborne to use the state shareholding to stop such a request if it is made and UK Financial Investments, which looks after the taxpayer stake, is thought to be considering abstaining if it is put to the annual meeting in May.

Lord Oakeshott, the Liberal Democrats' former Treasury spokesman in the Lords, called any such bonus proposals "preposterous" and called on the government to nationalise the Edinburgh-based bank.

"Taxpayers are having to sign a never ending stream of blank cheques to cover disastrous long-term management at RBS while the bank's still failing to lend," Oakeshott said.

Andrew Tyrie, chairman of the Treasury select committee, stressed the need for the bank to lend to small business customers. "RBS is still paying a heavy price for past misconduct. So too are its customers and taxpayers. It is crucial for the recovery that lending, particularly to SMEs, is not constrained as a result," Tyrie said.

Payments of as much as £5.6m promised to Hester will not be affected.

McEwan said the losses related to a period at the time of its bailout when RBS was the biggest bank in the world. "The scale of the bad decisions during that period means that some problems are still just emerging. The good news is we are now a much stronger bank and can manage these costs while still supporting our customers," he said.

The unexpected statement came at 4pm following a board meeting and 30 minutes before the market closed, leaving the shares closed 2% lower at 332p – representing a £15bn loss on the taxpayers' stake.

Nathan Bostock, who has quit as finance director to join Santander, said there would be a "substantial loss" but would not be precise.

The announcement was made to coincide with a deadline by US regulators to file the results of one of its US arms.

Standard & Poor's said the bank's credit rating was unaffected but the key capital ratio will be among the lowest of its peers.

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New RBS chief Ross McEwan denies 'systematic' profiteering

McEwan admits damaged reputation but says bailed-out bank did not wreck businesses to gain assets

Royal Bank of Scotland's new boss admitted on Wednesday night that the reputation of the bailed-out institution has been seriously damaged by allegations that it is deliberately wrecking small businesses in pursuit of profit.

But Ross McEwan, who started as chief executive last month, fought back against the claims made by Lawrence Tomlinson, an adviser to business secretary Vince Cable.

The allegations against the 81%-taxpayer owned bank, in a report published on Monday, have prompted the interest of City regulators and the Serious Fraud Office (SFO).

McEwan said the bank had not received any evidence of a systematic effort to make money from customers by pushing them into its turnaround division, known as the global restructuring group (GRG).

Pledging a full investigation by law firm Clifford Chance, McEwan said: "It is important to note that the most serious allegation that has been made is that RBS conducted a 'systematic' effort to profit on the back of our customers when they were in financial distress.

"We do not believe that this is the case, but it has nonetheless done serious damage to RBS's reputation. No evidence has been provided for that allegation to the bank."

Tomlinson makes allegations in his report – compiled from evidence he had received from businesses – that RBS was pushing businesses into its GRG division, which in turn was buying up properties through its specialist property arm West Register to make a profit.

Sir Philip Hampton, the chairman of RBS, called the allegations "unsubstantiated" and "anecdotal" in an interview with the BBC in which he said the bank had dealt with tens of thousands of customers in distress since the crisis. "If there are facts that show we have behaved in the wrong way then we will take appropriate action," said Hampton, who acknowledged the bank may have been "too heavy" in some instances.

RBS has not received the details of the individuals and businesses used by Tomlinson to compile his report, which Cable has already handed to City regulator the Financial Conduct Authority. The FCA is expected to conduct a detailed analysis of the allegations.

The SFO has not launched a formal investigation but said: "We are aware of the issue and monitoring developments."

The identities of individual customers are not contained in the Tomlinson report – in order to protect their relationship with RBS – but about 20 examples are thought to be attached to the report sent to regulators and the Department for Business.

In his report, Tomlinson, a Yorkshire-based entrepreneur who is also a customer of RBS, said he had "shocking examples of business owners being confronted with last minute demands for information and money" that have forced their businesses over the edge. Tomlinson also called on all banks to look at the way they handle businesses in distress and for the FCA and the government to consider if the current rules are robust enough to protect customers. Lloyds Banking Group is also named in the report but does not face the same criticism as RBS.

RBS was one of the biggest lenders before the 2008 banking crisis and at one stage was responsible for 50% of all property loans to small businesses. A report the bank commissioned into its own lending practices, also published on Monday, by former deputy Bank of England governor Sir Andrew Large, said it had contracted its lending after the crisis too quickly.

McEwan said: "RBS played a big role in the lending boom that led to the UK's economic crisis. After the crash, tens of thousands of our customers saw their asset values plummet and ended up in serious financial difficulty. This was an economic crisis for Britain, but it was also a very personal tragedy for many families and small businesses around the country."

Concerned that the allegations will undermine trust in the bank – already battered by a £390m Libor fine and a mounting bill to compensate small businesses missold interest rate swaps – McEwan insisted the Clifford Chance review would be independent. It would report back by 31 January after scrutinising the main findings of the Tomlinson report, interviewing bank staff and customers and reviewing samples of loans.

Clifford Chance would also advise RBS on whether the allegations appear to have substance and make recommendations about steps, if any, should be implemented as a result.

Article Source : http://www.guardian.co.uk
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Ross McEwan to make first presentation to City as RBS boss

New Zealander expected to set out ambitions for RBS amid speculation he will also announce outcome of 'bad bank' review

Ross McEwan is to make his first presentation to the City as boss of Royal Bank of Scotland on Friday amid speculation that the outcome of a government review into spinning off a bad bank will be announced with the third quarter results.

The New Zealander is expected to set out an ambition to end lingering concerns about the bank's financial strength after taking over from Stephen Hester on 1 October. It is thought McEwan will outline the outcome of the government-commissioned review into whether a "bad bank" of underperforming loans should be spun out of 81% taxpayer-owned RBS.

He is also expected to publish a report the bank commissioned from the former Bank of England deputy governor Sir Andrew Large after it faced criticism about its lending to small businesses.

It is thought the government will step back from asking RBS to create an extensive bad bank holding as much as £120bn of problem loans. But McEwan is expected to set out his thoughts on the future of the RBS investment bank, its US arm, Citizens, and its private bank Coutts – banker to the Queen.

Citizens, already due for a stock market flotation in 2015, could be sold off more quickly, and there has been repeated speculation that Coutts could also be earmarked for sale. The investment bank, where the headcount has already shrunk from 25,000 before the bailout to 9,000, could be forced to retrench further.

The new chief executive is not expected to use the third quarter results to outline his strategic vision for the bank he joined a year ago as head of the retail operations. Sky News reported last night however that he would open talks with the government over restarting dividend payments to shareholders, although it could be years before such a move was approved.

McEwan has been readying the bank's staff for the outcome of the government review into a breakup. He recently told them he believed it would resolve an outstanding uncertainty about the future of the bank, bailed out five years ago with £45bn of taxpayer money.

In an email to staff a fortnight ago, he said: "The future of this company will not be about whether we operate in particular areas or where our problem assets sit. The future of this company is about how good a job we do for our customers, including those who are having difficulty repaying their loans. And it will be about how well we live up to all our responsibilities, particularly those we have to the UK."

The same week, George Osborne told the Daily Telegraph he was close to a decision on RBS. "We are looking at the case for a bad bank and if not a bad bank, what is the alternative strategy that really gets on top of the problems in that bank and goes on being what I want it to be, which is a bank supporting the British economy," he said.

The City is anxious about the creation of a bad bank although speculation in recent days has focused on the expansion of the existing non-core division. Even so, Ian Gordon, banks analyst at Investec, said: "We still fear that, even in the absence of an outright good bank/bad bank split, more covert steps may still destroy value".

Mortgage firm sues over Libor

US mortgage finance company Fannie Mae sued nine of the world's largest banks yesterday, including Barclays and Royal Bank of Scotland, accusing them of colluding to manipulate interest rates and seeking more than $800m of damages.

In a complaint filed in the US district court in Manhattan, the company accused the banks of manipulating the London Interbank Offered Rate, or Libor, as well as other interest rate benchmarks.

Fannie Mae said this manipulation caused it to lose money on interest-rate swaps and other transactions. It is also seeking punitive damages.

Smaller rival Freddie Mac filed a similar lawsuit in March against more than a dozen banks.

"Fannie Mae filed this action to recover losses it suffered as a result of the defendants' manipulation of Libor," a spokesman said. "We have a responsibility to be good stewards of our resources."

Four of the banks sued by Fannie Mae – Barclays, Rabobank, Royal Bank of Scotland and UBS - have previously settled with regulators over similar allegations and admitted wrongdoing.

The other bank defendants are Bank of America, Citigroup, Credit Suisse, Deutsche Bank and JPMorgan Chase.

Representatives of Bank of America, Barclays, Citigroup, Deutsche Bank, JPMorgan and RBS declined to comment. The other banks did not immediately respond to requests for comment.

The case is Federal National Mortgage Association v Barclays Bank Plc et al, US District Court, Southern District of New York, No. 13-07720.

RBS has already signalled it is involved in the new global investigation into foreign exchange trading and last night it was reported to have suspended two traders.

Article Source : http://www.guardian.co.uk
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RBS boss faces results test as break-up looms

Release of third-quarter figures comes amid questions over whether government will recommend hiving off "bad" bank

Ross McEwan, the new boss of Royal Bank of Scotland, will present his first set of results to City analysts this week amid speculation about the future structure of the bailed-out bank.

McEwan, who replaced Stephen Hester at the start of the month, will oversee the release of third-quarter figures on Friday which are likely to be overshadowed by questions about whether the government will recommend hiving off a "bad" bank.

His presentation will come days after the Lloyds boss, António Horta-Osório, also presents third-quarter results amid focus on the share price. The Portuguese banker stands to collect 3m shares – worth £2.4m at current prices – next month if the share price remains above 73.6p until the middle of the month.

That price, which must be maintained for 30 consecutive days, is regarded as the level at which the taxpayer breaks even on its stake. It has traded over that price since mid-October. The government sold off the first tranche of its stake in the bank in September.

George Osborne has commissioned bankers at Rothschild to consider the merits of splitting up RBS into a bad bank containing problem loans and a good bank that can be more easily privatised.

As much as £120bn of the bank's loans is said to have been considered in the review which was sparked by the parliamentary commission on banking standards. Osborne signalled the review in his Mansion House speech in June, seeming to contradict his previous position on a potential break-up of RBS.

In an interview a week ago the chancellor said: "We are looking at the case for a bad bank, and if not a bad bank what is the alternative strategy that really gets on top of the problems in that bank and goes on being what I want it to be which is a bank supporting the British economy."

McEwan has already prepared staff for the outcome the Rothschild review, telling them that the organisational structure of the bank is less important than their day-to-day role in handling customers.

While the chancellor commissioned the report, the board of RBS will have to decide on its implementation. The bank has warned that the government could be prevented from creating a bad bank by other RBS shareholders, who would need to approve any such move.

McEwan is not expected to use the third quarter results to set out his vision for RBS, a bank he joined a year ago to run the high street operations before being promoted. His strategy update is expected to take place in February.

Article Source : http://www.guardian.co.uk
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RBS announce Ross McEwan as Stephen Hester's successor

New Zealander McEwan, who joined RBS a year ago to run the retail bank, will take over in October

A low-profile New Zealander has been named as the new boss of Royal Bank of Scotland on a salary of £1m a year, the bailed-out bank announced on Friday when it reported £1.4bn of profits.

Ross McEwan, who joined RBS a year ago to run the bank's retail arm, will take over from Stephen Hester, who was parachuted in to run the bank following its £45bn taxpayer bailout.

In a sign of the change of direction at the 81% taxpayer-owned bank, McEwan immediately waived his bonus for 2014 and will have his bonuses from 2015 onwards linked to the share price at which the taxpayer paid for its stake. His salary is less than the £1.3m his predecessor received.

The 56-year-old is taking charge when the government is considering whether to carve out a "bad" bank to make it easier to privatise in the future and his background in retail banking will spark speculation that he will further shrink the investment bank.

Sir Philip Hampton, the RBS chairman, attempted to play down the idea that external candidates had walked away from being considered for the role. He also spelt out that the government could be prevented from creating a bad bank by the remaining shareholders who would need to vote on any such move.

The RBS results contained another £185m provision for mis-selling payment protection insurance, taking the total bill to £2.4bn, and an unusual charge of £385m to cover legal costs associated with unspecified regulatory actions which indicates it faces further fines from global regulators. In total, charges for legal action and regulatory actions is £620m.

The first half results of RBS demonstrated its contrasting fortunes with Lloyds Banking Group, where the government is expected to start selling down its stake soon. On Friday, shares in Lloyds continued to trade higher than the 73.6p the taxpayer paid for its 39% stake at above 74p – giving the chancellor chance to start selling at profit. But shares in RBS were down nearly 3% at 334p, well below the average price of more than 500p at which the 81% stake was bought in the bank.

Hester, who took over a bank in 2008 that made a record £24bn loss, said: "It really is good news that RBS is back in the black". The bank made it first two consecutive quarters of profit since 2008.

He will now leave on 1 October and described McEwan as a "person of integrity who has been a valued colleague over the past year". He had convinced him to move from Australia - where had been working at Commonwealth Bank of Australia. "I promised him an adventure and I think he will accept that an adventure is what we've delivered," said Hester.

Hampton has signalled that he will leave once the new chief executive has settled into the role and described McEwan as "the strongest candidate". "Pay wasn't an issue. Ross was very aware of the external pressures on banking pay. He wanted to make some gestures," said Hampton.

Any bonus McEwan could receive for 2013 while was running the retail bank is to be deferred to 2017 and then "subject to conditions around share price and extent of government sell down designed to allow taxpayers to gain value first".

He said: "We are a bank that millions of British families have entrusted with their finances. We support more companies – from the very smallest to the very biggest – than any other bank in the UK. Our international business helps customers access global markets and export goods and services around the world."

His appointment was welcomed by the chancellor. "He's impressed me with his vision of RBS as a strong, UK-centred corporate bank that is focused on supporting the British economy.

"He's committed to a new culture at the bank that puts the customer first, whether it's the family or small business or large company.

"I think he'll provide the leadership RBS needs as the bank puts the mistakes of the past behind it, and the government seeks to get the best value for the taxpayer from the money the last government put into the bank," George Osborne said.

In the same period last year RBS reported a loss of £1.5bn.

Article Source : http://www.guardian.co.uk

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