World Economy

RBS Posts $1.4b Q2 Loss

RBS Posts $1.4b Q2 LossRBS Posts $1.4b Q2 Loss

Royal Bank of Scotland Group Plc, Britain’s largest taxpayer-owned lender, posted a larger loss than estimated in the second quarter as it set aside more money to cover a lawsuit over its 2008 share sale.

The net loss of £1.08 billion ($1.4 billion) compared with a £280 million profit a year earlier, the Edinburgh-based lender said in a statement on Friday. That’s bigger than the £247 million loss average estimate of 11 analysts in a company compiled survey, driven by £1.28 billion of conduct and litigation charges, mostly tied to the rights issue lawsuit and a further provision for the payment protection insurance scandal, Bloomberg reported.

Chief Executive Officer Ross McEwan is almost halfway through a five-year plan to shrink the former global titan into a domestic lender, just as the UK economy begins to unravel after Britain voted to leave the European Union. The bank is yet to return to annual profit following its bailout during the financial crisis and faces losses from a US settlement over the sale of mortgage securities. It’s also struggling to sell its Williams & Glyn consumer bank to meet EU requirements after receiving state aid.

The Bank of England’s rate cut on Thursday threatens to undermine profitability at RBS by further squeezing the bank’s net interest margin, the difference between income from lending and borrowing costs, after several years of low rates. HSBC Holdings Plc said on Wednesday that a 25 basis point cut would eliminate about $100 million of net interest income in 2016.

RBS is the worst performing major British lender this year, declining 36% in the period, with the stock plummeting after the Brexit vote. It’s unclear when the UK government will reduce its 72% stake in the bank as it trades below the 407 pence a share at which taxpayers would break even on its 2008 and 2009 investment.

RBS said it was abandoning a plan to set up its Williams & Glyn unit as a standalone bank and would focus on a trade sale to another company. RBS received a formal bid for the business from Banco Santander SA this week, marking the second time the Spanish lender has tried to acquire the business, people with knowledge of the matter have said.

The bank is above its target of 13% common equity Tier 1 required to return any excess capital to investors. Before it can make payout, it must dispose off Williams & Glyn, complete the bulk of its restructuring, reach a settlement in the US mortgage probe and pass Bank of England stress tests later this year.