It is now 12 years since the financial crisis, which saw the RBS go cap in hand to the Government for a £45 billion bailout, leaving the taxpayer with 83% of this bank’s shares (toxic assets) with its CEO Fred Goodwin in disgrace, eventually to be stripped of his knighthood. The share price touched 11p at one time. The taxpayer now only owns 62.4%, but there have been gargantuan extra losses and share splits, with the UK Investments picking up copious dividends. The breakeven for the taxpayer to get its money back is 73p (today’s equivalent of 730p.). The current share price 213.50p (down over 6% today).

Hindsight is the greatest dealer. What should have happened was to have split RBS into a ‘good’ and ‘bad’ bank. Many believe that RBS, NatWest and Ulster Bank would have recovered more quickly and that slowly and maybe surely it would have been possible to write down/sell many of the toxic assets in the ‘Bad’ Bank. It never happened. The chances of the taxpayer getting full recompense in the next decade is remote. Also, PMH Capital made a very salient point this morning “Given the restrictive ratios and high cost base, will UK banks ever again make a sustainable return on capital, above their cost of capital (say at a nominal 10%?). If not valuations of banks like RBS will remain stuck in a rut.”

Many financial luminaries have tried to dig this bank out of the manure. Stephen Hester fell ‘foul’ of George Osborne. Their approach to the problem differed. He left in 2013, handing over to Ross McEwan, who manfully tried to cut the balance sheet down from its astronomical £2.2 trillion, following in the wake of Hester attempting to do the same thing. This included selling assets they would love to have kept such as Citizens Bank etc

McEwan recently handed over the baton to Alison Rose, an RBS lifer. She presented her first set of earning this morning. In isolation, there was a sign of improvement. Pre-tax profits were up 24% to £4.2 billion. Tier One Capital was very sound at 16.2%. The bank will be aiming to deliver between 9-11 return on equity. It will have to see an increase in the share price. It delivered 9% in the last year.

RBS is cutting costs at the rate of £250 million a year. It shut 215 branches last year. The bonus pool was cut to £307 million. PPI claims appear to have abated. There was a special dividend of 5p, which added to the 3p dividend seems reasonable. The big news was changing the name. The previous Chairman Sir Howard Davies hinted at it a couple of years ago. He felt the name RBS was toxic. Alison Rose has implemented the change. It is probably the right initiative. But many questions are left unaltered. When will the balance sheet become unencumbered? When will the taxpayer get its money back? With interest rates very low, the cost of capital rather high, when will shareholders get a bang for their buck. The market will like RBS not lending to coal users, but that is really a headline grabber. I wish Alison Rose well. She has a huge mountain to climb. At 10.15 am this morning RBS’S share price was 215.82p −12.88p (-5.63%). The shares are down 10.7% from a year ago.

David Buik

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