Comment: RBS’s inability to turnaround disappoints/ European financial markets decline
February 27, 2014 7:32 am
RBS FY results come in weaker than expected despite ongoing efforts by the bank to deleverage and cut costs – pretax operating loss for 2013 comes in at £8.2b. The bank last month set aside £3b extra for provisions to cover costs of litigation and mis-selling PPI = that’s one of the reasons why FY earnings deteriorated.
As such, RBS has had to offload its remaining interest in Direct Line, which it announced yesterday and looks to float its US business Citizens Bank and Williams & Glyn, its UK retail business. RBS is now looking to speed up the process of these disposals to raise capital or else be punished by the market for its inability to turnaround. UK politicians will have a tougher time with RBS as today’s figures clearly suggest the bank is far from privatisation – a move that the government were hoping to pull before next year’s general elections.
What will anger the public, politicians and the market alike is the bank setting around £576million in staff bonuses which although cut by £679million in 2012, is still a tremendous amount to reward senior bank staff who have thus far failed to stay on track of strategy and have been ill-prepared for selling off the government’s stake in the bank. RBS tries to appease the market with an updated strategy to downsize the business further – it is doing so by separating the business into three segments; Personal & Business Banking, Commercial & Private Banking and Corporate & Institutional Banking.
Not a big surprise; the market was somewhat expecting this – RBS is splitting the business to reduce cost income, cut operational spend and downsize the loss making investment banking unit further. Problem here is that the market has lost trust in these restructuring strategies which fail to bear fruit – after giving chance after chance, RBS’s numbers today highlight a troubled bank which has failed to turn profitable and in its attempts to do so, has lost the markets’ trust. This all means that privatisation of RBS still appears to be far out of sight.
Onto financial markets, equities weaker again in Europe, gold trades lower too whilst core government bonds inch higher and FX markets remain range-bound on the whole. Traders in Europe continue to fret over Ukrainian tensions and China’s currency slumping as well as concerns about the country’s ballooning property market. Adding to this, US data continues to decline but from commentary by Fed officials and chair Yellen, it seems unlikely that the Fed will change course now on halting the tapering process.
Yellen will make her testimony later to US Senate which will undoubtedly steal the limelight in afternoon trade. Data out of Europe has been a little mixed – Spanish economy grew less than expected in the Q4, only up 0.2% – at the same time, we have had German unemployment data falling by around 14k in February – the rate is running around 6.8%; overall a decent result, indicating resilience in the German labour market. Looking ahead, we have German inflation figures, US durable goods orders and weekly jobless claims.
RBS FY results come in weaker than expected despite ongoing efforts by the bank to deleverage and cut costs – pretax operating loss for 2013 comes in at £8.2b. The bank last month set aside £3b extra for provisions to cover costs of litigation and mis-selling PPI = that’s one of the reasons why FY earnings deteriorated.
As such, RBS has had to offload its remaining interest in Direct Line, which it announced yesterday and looks to float its US business Citizens Bank and Williams & Glyn, its UK retail business. RBS is now looking to speed up the process of these disposals to raise capital or else be punished by the market for its inability to turnaround. UK politicians will have a tougher time with RBS as today’s figures clearly suggest the bank is far from privatisation – a move that the government were hoping to pull before next year’s general elections.
What will anger the public, politicians and the market alike is the bank setting around £576million in staff bonuses which although cut by £679million in 2012, is still a tremendous amount to reward senior bank staff who have thus far failed to stay on track of strategy and have been ill-prepared for selling off the government’s stake in the bank. RBS tries to appease the market with an updated strategy to downsize the business further – it is doing so by separating the business into three segments; Personal & Business Banking, Commercial & Private Banking and Corporate & Institutional Banking.
Not a big surprise; the market was somewhat expecting this – RBS is splitting the business to reduce cost income, cut operational spend and downsize the loss making investment banking unit further. Problem here is that the market has lost trust in these restructuring strategies which fail to bear fruit – after giving chance after chance, RBS’s numbers today highlight a troubled bank which has failed to turn profitable and in its attempts to do so, has lost the markets’ trust. This all means that privatisation of RBS still appears to be far out of sight.
Onto financial markets, equities weaker again in Europe, gold trades lower too whilst core government bonds inch higher and FX markets remain range-bound on the whole. Traders in Europe continue to fret over Ukrainian tensions and China’s currency slumping as well as concerns about the country’s ballooning property market. Adding to this, US data continues to decline but from commentary by Fed officials and chair Yellen, it seems unlikely that the Fed will change course now on halting the tapering process.
Yellen will make her testimony later to US Senate which will undoubtedly steal the limelight in afternoon trade. Data out of Europe has been a little mixed – Spanish economy grew less than expected in the Q4, only up 0.2% – at the same time, we have had German unemployment data falling by around 14k in February – the rate is running around 6.8%; overall a decent result, indicating resilience in the German labour market. Looking ahead, we have German inflation figures, US durable goods orders and weekly jobless claims. 
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