LONDON (Reuters) - Britain’s Royal Bank of Scotland will pay its first dividend since its near-collapse and state bailout in 2008, paving the way for the government to further reduce its stake in the lender.
Taxpayer-owned RBS said it would pay an interim dividend of 2 pence per share, subject to the finalisation of a $4.9 billion settlement with the U.S. Department of Justice (DOJ) over the bank’s sale of mortgage-backed securities in the run up to the financial crisis.
Until its agreement in May, the looming settlement had blocked RBS’s return to dividends, excluding a whole class of income-focused investors from buying its stock.
Announcing the bank’s half-year results, RBS CEO Ross McEwan said the bank was now looking to return further excess capital to shareholders, including via special dividends or share buy backs, from 2019.
“Our intention has always been to get capital back into the hands of shareholders,” he said on a conference call with reporters, adding that the bank would want to look at the potential impact of Brexit before making any major payouts.
The British government still holds a 62.4 percent stake in RBS, acquired with a 45.5 billion pound ($59.1 billion) state bailout during the financial crisis.
The interim dividend payment would return 150 million pounds to government coffers, according to a Reuters calculation.
It also expands the market for future government share sales by enabling a broader array of investors to look at buying the bank’s shares.
RBS stock however has not performed well recently, dropping around 7.5 percent between the first government share sale in June and Friday’s results announcement.
The bank’s shares had risen almost 3 percent to 257.5 pence at 0745 GMT on Friday.
Bank of England Governor Mark Carney said on Friday RBS’s results were another sign the country was moving beyond the financial crisis.
However McEwan signalled there could be new trouble ahead for the British economy. He struck a cautious tone on Brexit, saying that there was still uncertainty around the arrangements between Britain and the European Union and that the economy was running at its slowest rate in years.
RBS is making “an absolute assumption” that there will be no ‘passporting’ of financial services as part of any deal between the two sides, he added.
Such a deal would have allowed British lenders to continue selling their services in Europe without making major changes.
The bank reported a pre-tax profit of 1.8 billion pounds for the first half of 2018, even after taking a 1 billion pound provision to cover its settlement with the DOJ.
RBS’s common equity tier one capital ratio - a measure of banks’ financial strength - was 16.1 percent, after accounting for the DOJ settlement, the impact of the dividend and after paying 3.5 billion pounds to shore up its pension fund.
“Just because RBS is in a much better place than it was a decade ago doesn’t mean it’s all smooth sailing from here,” said Fiona Cincotta, senior market analyst at City Index.
She pointed to tough competition in products like mortgages, which had shrunk the bank’s net interest margin - an indicator of bank profitability - and said time will tell whether years of hefty cuts have left RBS less able to compete with its peers.
($1 = 0.7679 pounds)
editing by Silvia Aloisi and Keith Weir