RBS shares on brink after dividend delay

Updated at 1440 GMT

 

After eight, and counting, are there any signs that Royal Bank of Scotland’s latest consecutive full-year loss will be its last…or almost its last?

Not as many as the bank would like.

 

Pay-out/spin-off delayed

Stand-out developments on the downside included that the bank rolled-back plans to pay its first dividend for eight years.

RBS warned in July that pay-outs would start no earlier than 2017.

Now, it warns that “the potentially elongated period” to reach a settlement with US authorities over a mortgage-backed securities case will probably delay dividends for even longer.

RBS has also hit a roadblock in trying to get shot of about 300 branches re-branded as the Williams & Glyn bank.

It looks like they will now stay on RBS’s balance sheet until at least the first quarter of 2017.

 

The cost of repairing years of damage from regulatory misadventures and restructuring was the story behind the 72.6% government-owned institution’s 2014 loss.

And the same factors were behind its £1.97bn 2015 loss, which at least was less than £3.47bn, in the year before.

 

Still cutting after all these years

Arguably, little has changed in terms of the broad challenges hampering RBS since its near-collapse in 2008.

CEO Ross McEwan’s statement on Friday wasn’t quite a template from years before, using different numbers.

But he wouldn’t have gone far wrong if it had been.

“We are looking to take another £800m from our cost base,” said McEwen.

“This is an area where we must continue to be disciplined given the uncertain macroeconomic and low interest rate environment our core businesses face.”

This time, restructuring costs were £2.9bn; conduct and litigation costs £3.6bn.

 

Balance sheet progress continued: Risk Weighted Assets saw a 32% reduction to £243bn, as per target.

Core capital ratio (Core Equity Tier 1 Ratio) leapt higher, in line with expectations.

The ratio increased to 15.5% by the end of December 2015, from 11.2% at the end of the 2014, lifting RBS ahead of all large UK banks.

 

Dividenden sind verboten

Too bad shareholders don’t particularly care about the decreasing likelihood that the Royal Bank of Scotland might need to raise capital.

They care more that RBS is essentially still not permitted to pay a dividend.

And that pay-outs will probably continue to be verboten until 2018.

It appears the government’s majority stake has, again, become the primary reason for RBS’s disproportionate punishment by shareholders, including during the recent European bank sell-off.

RBS is underperforming the UK bank sector by about 5 percentage points so far this year, closely followed by Barclays.

 

Other dark clouds are similarly persistent.

“Substantial incremental provisions may be recognised during the year” RBS said.

In other words, there will be more of the same, as per 2015:

 

Set aside breakdown

• £2.1bn for the US mortgage backed securities case
• £334m for potential hit from US FX wrongdoing
• £600m for PPI
• £157m for ‘packaged accounts’
• £377m for ‘other conduct’ cases

As we pointed out a day ago regarding Lloyds Bank’s final 2015 report, the legal outlook may hold more promise for lawyers (and litigants) than for banks.

 

From a technical perspective, RBS is now priced at similar levels as it was between August and September 2012.

The stock bounced and rallied hard from 219p at the end of that stretch.

Support was holding at the time of writing.

Admittedly though, it’s difficult to rule out a breakdown, in the medium term.

In that event, attention would turn to 193p-195p, prices at which RBS revived in June and July of 2012.

Upside looks set to be slow in coming.

If shares get past the consolidation area [rectangle] between 240p/250p, the recent reversal at 258p/127.2% and close to 50-day MA (yellow) would be next.

The descending trend from late October 2014 (red) will present another barrier, but looks a long way off.

 

DAILY CHART

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