February 23, 2018 / 7:38 AM / 4 months ago

Royal Bank of Scotland profit milestone overshadowed by DOJ impasse

LONDON (Reuters) - Royal Bank of Scotland Group reported its first full-year profit in a decade, but Friday’s milestone was bitter-sweet for the British bank which had hoped to get a multi billion-dollar misconduct charge out of the way in 2017.

RBS shares fell 4.6 percent to 269 pence at 0835 GMT as it gave no update on a settlement with the U.S. Department of Justice for mis-selling toxic mortgage backed securities, which some analysts estimate could mean a charge of up to $12 billion.

The bank’s 752 million pound ($1.05 billion) profit beat a company-provided average of analyst forecasts for a 592 million pound loss. It had hoped to settle the U.S. mis-selling charges, the bank’s last large remaining misconduct issue, in 2017.

Chief Executive Ross McEwan said the settlement was out of the bank’s control but it could begin to think about resuming dividends or buying back shares nearly a decade on from its 45.5 billion pound state bailout during the financial crisis

“With many of our legacy issues behind us, the investment case for this bank is much clearer and the prospect of returning any excess capital to shareholders is getting closer,” he said.

The DOJ issue weighs on RBS’s share price and complicates the government’s plan to sell down its 71 percent stake.

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RBS has in recent months been at the centre of renewed political furore over the mistreatment of thousands of business customers during and after the financial crisis.

This has hamstrung McEwan’s efforts to rebuild the bank’s image and he admitted on Friday that a confidential report into the bank’s conduct, recently made public and detailing behaviour by RBS staff, made for “difficult reading”.

The CEO’s pay fell in 2017 as a result of the bad publicity around the bank’s brand image.

RBS took 764 million pounds of provisions in the fourth quarter for conduct issues such as its mis-selling of payment protection insurance, which came in at 175 million pounds. Another 492 million pounds went to other cases related to the bank’s mortgage-backed security mis-selling.

Restructuring costs were 531 million pounds for the quarter and 1.6 billion for the year. RBS said it would invest 1.5 billion pounds more than previously forecast in the next two years, around 800 million pounds of which will go towards digitisation.

“Investors are likely to be frustrated by the 1.5 billion pounds of incremental restructuring costs needed to deliver accelerated investment spend,” Joe Dickerson, an analyst at Jefferies, said.

RBS said it had beaten its overall cost reduction target of 750 million pounds in 2017, taking out 810 million pounds.

($1 = 0.7173 pounds)

Royal Bank of Scotland signs are seen at a branch of the bank, in London, Britain December 1, 2017. REUTERS/Peter Nicholls/File Photo

Reporting by Emma Rumney and Lawrence White; Editing by Edmund Blair and Alexander Smith

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