RBS declared an interim dividend of 2p, pending the settlement with the US Department of Justice (DoJ). This announcement was a pleasant surprise, and projects a positive image about the firms financial health. The UK government is a majority shareholder in the bank, and the dividend will be welcomed by Westminster, but the pay-out will pale in comparison to the tens of billions of pounds that were spent rescuing the bank during the credit crisis.
Second-quarter operating profit before tax was £613 million, and that compares with £1.254 billion in the same period last year. It is worth noting that the company set aside £1.04 billion in relation to the DoJ fine. The first-half figures look more impressive as operating profit before tax only fell by 6.4%. Operating expenses in the first six months dipped by 2.4%, and this is further proof the bank is tightening its belt. The common equity tier 1 ratio now stands at 16.1%, subject to the DoJ settlement. The rude health of the balance sheet underlines how far the bank has come since the government bailout.
RBS had a great start to the year as profits soared by 205% to £792, topping equity analysts forecasts. This was a strong follow up from the annual profit that was revealed in February, its first yearly profit in a decade. The CEO, Ross McEwan, confirmed the banks turnaround is progressing well despite a challenging market.
In the first quarter, the bank didnt set aside any funds for the mis-selling of payment protection insurance (PPI). The deadline to claim for PPI compensation is late August 2019, and it is possible that RBS could see an increase in compensation claims on the run up to the deadline.
In May, the bank announced they provisionally agreed a settlement with the DoJ for $4.9 billion, and the market reacted positively to this as the size of the fine was far smaller than what some traders were speculating. The fine was regarding the mis-selling of financial products in the US before the financial crisis. Now that it appears that the dark cloud has lifted over the bank, investor sentiment could flourish.
The UK government sold off a 7.7% stake in RBS in June, taking its stake in the bank down to 62.4%. Westminster is still a major shareholder in the bank, but at least its trimming its position. The share sale sends out a positive message about the financial health of the bank, and the sooner it returns to private ownership, the sooner it can behave like a more capitalist company.
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