RBS Q4 Loss Widens; To Reduce Operating Expenses GBP 2 Bln In Next Four Years

(RTTNews) - Royal Bank of Scotland Group PLC (RBS, RBS.L) reported that its net loss attributable to ordinary shareholders for the fourth-quarter winded to 4.441 billion pounds from 2.740 billion pounds in the fourth-quarter of 2015. The latest-quarter result included a litigation and conduct charge of 4.128 billion pounds and restructuring costs of 1.007 billion pounds.

Looking ahead, RBS plans to reduce adjusted operating expenses in the order of 2 billion pounds in the next four years with around two thirds of this from the core bank.

The company said it is targeting a gross RWA reduction of approximately 20 billion pounds across Personal & Business Banking or PBB, Commercial & Private Banking or CPB and NatWest Markets or NWM by the end of 2018, with some offsetting volume growth.

It expects that the reduction will be largely achieved through improvements in the quality of risk models, exiting low return, non strategic and risk intensive asset pools, improved risk metrics in certain portfolios and benefits from data clean-up. It estimates that the income loss associated with this reduction will be in the range 250 million pounds- 300 million pounds on an annualised, pre tax, basis.

Operating expenses for the four-quarter were 7.354 billion pounds were 1.593 billion pounds higher than the fourth-quarter 2015 reflecting a 2.004 billion pounds increase in litigation and conduct costs and a 393 million pounds increase in restructuring costs, partially offset by a 498 million pounds write down of goodwill in Q4 2015 and a 306 million pounds reduction in adjusted operating expenses, principally driven by a 218 million pounds reduction in Capital Resolution.

Adjusted operating profit was 1.185 billion pounds was 499 million pounds, or 73%, higher than the prior year.

Net interest income of 2.208 billion pounds increased by 46 million pounds compared with last year. principally driven by a 115 million pounds increase across PBB and CPB.

Non-interest income for the quarter was 1.01 billion pounds, up from 322 million pounds in the prior year. A gain of 308 million pounds was recognised for volatile items under IFRS, compared with 59 million pounds in the fourth-quarter of 2015, and the fourth-quarter 2015 included a 263 million pounds loss on redemption of own debt. In addition, NatWest Markets non-interest income increased by 98 million pounds to 256 million pounds.

The company expects that income in 2017 will continue to be supported by balance sheet growth across PBB and CPB.

RBS plans to reduce adjusted operating expenses by a further £750 million in 2017, in addition to the £3.1 billion achieved across 2014 to 2016, and it expects that the adjusted cost:income ratio will improve across our combined PBB, CPB and NatWest Markets franchises in 2017 compared with 2016.

RBS is targeting a CET1 ratio of at least 13% at the end of 2017. As part of the 2016 Bank of England stress testing exercise, RBS submitted a revised capital plan, incorporating further capital strengthening actions, which was accepted by the PRA Board.

RBS issuance plans for 2017 focus on issuing £3-£5 billion MREL-compliant Senior holding company (RBSG) securities. We do not currently anticipate the need for either AT1 or Tier 2 issuances. In addition, and reflecting strategic progress, it also target a progressive return to other funding markets to support our lending growth.