RBS Hit by Almost $3.6 Billion of Provisions -- Update

By Max Colchester 

Royal Bank of Scotland Group PLC on Wednesday warned it would slump to yet another full-year loss after it put aside GBP2.5 billion ($3.59 billion) to cover a slew of regulatory issues, including a looming settlement with U.S. authorities over the sale of mortgage-backed securities.

The 73% U.K. government-owned bank is continuing to trudge through a range of legal problems built up over the years. The provisions detailed Wednesday will show up in its full-year 2015 earnings expected late next month.

In an unscheduled update to investors, RBS said it would set aside an extra GBP1.5 billion to cover litigation surrounding the sale of toxic mortgage-backed securities in the U.S.

RBS said it would take a further GBP500 million provision to cover the wrongful sale of insurance product Payment Protection Insurance, which was widely sold to people who didn't need it. U.K. authorities have set a proposed deadline in 2018 for compensation claims and RBS expects higher customer claims in the lead up to this.

The bank is also writing down the value of its private bank by GBP498 million over concerns about its future profitability because of low interest rates and higher tax rates.

"We've always been open about the scale of past issues facing RBS," Chief Executive Ross McEwan said in a statement.

The U.K. government last year began to sell down its stake in RBS at a huge loss. Since then RBS's share prices has fallen making future sales even more unpalatable, with uncertainty over the size of fines and restructuring continuing to irk investors.

In the U.S., RBS's extra provision related to mortgage-backed securities brings the total set aside to GBP3.8 billion. The provision only relates to civil litigation. It doesn't include any reserves for an expected settlement with the U.S. Justice Department, which is probing the bank over criminal and civil issues related to the sale of mortgage bonds at the height of the U.S. housing boom. A fine is expected this year but the bank's executives said that a settlement isn't close. "Those negotiations haven't been done," Mr. McEwan said on a call with reporters.

RBS said expects to have a full-year Core Tier 1 capital ratio of 15%. It said it expected the hit on capital "to be partially offset by a reduction in RBS's core-capital requirements."

Following a change in accounting rules the bank also said it would recognize a GBP3.3 billion liability related to it pension plan. The bank is taking a GBP1.6 billion hit to top up its pension plan but this is unlikely to flow through to the bank's bottom line for full year.

RBS is set to announce full-year earnings on Feb. 26.

Write to Max Colchester at [e-mail]

(END) Dow Jones Newswires

January 27, 2016 03:54 ET (08:54 GMT)

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