The RBS recovery continues with a return to profit in the first half of the year. RBS made £939 million ($1.23 billion US) pre-tax profit first half and RBS shares rose at least 3% as a result. In the first half of last year, the RBS made a loss of £2 billion. This is a good turn-around for the British bank, considering it paid £396 million towards legal costs due to mis-selling of US mortgage products.
This related to the £3.65 billion settlement the bank has been ordered to pay the US Federal Housing Agency (FHA). This was for the mis-selling of dodgy mortgage-backed securities valued at $32 billion. In fact, the RBS may have been center to a number of mis-dealings. Securities for subprime mortgages is only one.
The Royal Bank of Scotland is still owned by British taxpayers through the government. The UK government still owns 73% of RBS Shares. While this news appears to be positive for the RBS, there are still many hurdles for the bank to clear. It has a number of cases to answer and has not posted an annual profit since 2007. That is the year all the banking problems started. The RBS recovery has a way to go yet.
In addition to what has already been paid, the RBS still has an issue the US Department of Justice to settle. This relates to the mortgage mis-selling issue. The bank has stated it has no update to offer as to when this case may be settled. What has been noted however, is that the RBS does not expect to make a net profit by the end of this year. This is in spite of its half-year profit.
Regarding Brexit, the RBS has stated that it has been considering moving the European aspects of its business to the Netherlands. It already has a license to operate in Holland and come to Brexit it can relocate. This is because of its ownership of the Dutch bank ABN Amro since 2007.
The bank did state, however, that only 150 staff would be involved. Some relocating from London and others hired in Amsterdam where its EU headquarters would be situated. There should be no significant impact, on the Royal Bank of Scotland’s Edinburgh corporate headquarters. In fact, Brexit may even give the RBS recovery a friendly helpful nudge.
In summary, the RBS made a net £939 profit first half of 2017, more than expected. The CET ratio of 14.7% exceeded the bank’s target. This is an improvement over recent years, and it looks like the RBS recovery and RBS shares have a good future. However, it is still likely that second half legal expenses will result in a net loss.
Brexit will have a significant effect on the RBS recovery due to the bank being unconstrained by EU regulations. Time will tell how the onset of Brexit affects a number of business sectors and institutions. Interesting times lie ahead.
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