RBS impressed investors by beating analysts’ profit expectations by around £400m despite subdued growth in the UK economy. RBS stock is quite unstable these days as the company is planning to change its name to Natwest.
New Chief Executive of Royal Bank of Scotland Alison Rose disclosed new plans of action for the taxpayer-backed bank on Friday. What is interesting that she added severe cuts on the size of its loss-making investment bank. She also decided to rebrand the company to NatWest.
Back in 2008 when the financial crisis drowned all major banks in the world, taxpayers had to rush to help the lapsed bank. A bank rescue package totaling some £500 billion (approximately $850 billion) was announced by the British government. The plan was focused on restoring the market confidence and helping stabilize the British banking system.
No Taxpayers Will Have to Come to a Rescue RBS
It also intended to provide for a range of what was claimed to be short-term “loans” from the taxpayer and guarantees of interbank lending. It included up to £50 billion of taxpayer investment in the banks themselves. In fact, some of these loans and investments, via shareholdings, have since been sold back to the market at huge losses to the taxpayer (but a consequent subsidy to the shareholders). Rose is, therefore, hoping the rebranding will help shift the lender’s image away from this “rescue”.
The strategy includes plans to reduce investment bank NatWest Markets’ risk-weighted assets to 20 billion pounds ($26.10 billion) and a series of green targets such as cutting the impact of the bank’s climate financing by 2030 in half.
The lender reported in its earnings that the expected pre-tax profits were 4.2 billion pounds for 2019. That is 24% higher than in 2018 and above analyst estimates.
Still, the results were chipped by a deficit at NatWest Markets of 121 million pounds. It also was affected by formerly pledged 900 million pound provision to compensate customers mid-sold loan insurance.
8 Pence Dividend Disappoints Investors
Rose stated:
“Today marks a new era, as we provide an update to our plans and a new purpose for the bank that will help us become a more sustainable business, delivering better outcomes for our customers and our shareholders.”
Some analysts claim the bank’s 8 pence dividend for the fourth quarter could probably disappoint investors.
Joe Dickerson, an analyst at Jefferies said that they believe investors will be disappointed with capital return because it suggested RBS could be preparing to buy back shares held by the government in any sale after the March 11 budget.
Going Carbon Zero and Unstable RBS Stock
Be it as it may, Rose also promised the bank would go carbon net zero in 2020, before aiming to become “climate positive” by 2025.
That could include moves like stopping lending to coal companies to achieve Rose’s transition into what she called a “purpose-led” bank.
She said:
“Our performance doesn’t yet match the potential that exists in this bank. We can deliver so much more. The way people live their lives has changed. And their expectations of companies are changing too; looking for us to deliver not only financial performance but a positive contribution to society; benefitting customers and communities as well as shareholders. The future of this bank depends on us successfully delivering on both.”
Meanwhile, RBS confirmed Mark Bailie, the boss of fledgling digital bank Bo, is quitting and is leaving with immediate effect, amid investor concerns about the venture’s commercial viability. He will be replaced by Marieke Flament, the boss of digital brand Mettle, who will run both businesses.
RBS stock is currently trading at $5.95 (+0.50%) though having fallen around 8% in the pre-market. However, on February 12, it made a good jump from $5.70 to over $5.90.
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