RBS first profit in decade clouded by costs and litigation

London: Royal Bank of Scotland Group Plc swung to its first full-year profit in a decade, but the delay in settling with the US. Department of Justice over a mortgage-securities probe and rising restructuring costs are casting a shadow on any celebrations. The shares fell.

Executives at the government-owned bank warned restructuring costs will be about £2.5 billion (Dh12.8 billion, $3.5 billion) over the next two years, and that it may take further charges for litigation as discussions with the US regulators remain beyond the company’s control. The restructuring costs are partially linked to the increased use of artificial intelligence and technology, as the lender aims to catch up with its competitors.

“The digitalisation of banking is happening at a pace,” Chief Executive Officer Ross McEwan, said in a call with reporters on Friday. “We will be spending more money to make sure that we stay up with it and lead on it as well.”

In the last three years, the usage of the branch network for transactions went down about a third as clients switched to digital, he said. McEwan declined to comment on potential closure of branches and job reductions. The company shut 259 branches last December.

Agreement

The lender said there is no update so far on the pending litigation with the US authorities. RBS, which is still hampered by past misconduct charges and scandals, needs to reach an agreement before it can resume dividends to help sell the government’s majority stake. RBS set aside about 764 million pounds for litigation provisions in the fourth quarter of 2017.

The shares fell 4.5 per cent to 269.3 pence at 8:56am in London trading, the biggest fall in a year.

McEwan had hoped to settle with the US authorities by the end of last year, aiming to turn the bank back to profitability in 2018. In December, the New Zealander said that while RBS is well-capitalised to handle the settlement, there was no certainty on where the case sits in the DOJ priority list.

“The number of legacy issues the bank faces has reduced,” McEwan said. “However, we have one major legacy issue that we have yet to resolve which is with the US Department of Justice. The timing of the resolution of this issue is not in our control.”