LONDON (Alliance News) – Royal Bank of Scotland Group PLC on Friday reported its eighth consecutive annual loss, with the state-backed lender still suffering in 2015 from the 2008 financial crisis, with the extent of the clean-up meaning there will be some delay to returning excess capital to its shareholders.

The Edinburgh-based bank’s net loss narrowed to GBP1.98 billion in 2015 from GBP3.47 billion in 2014. Adjusted operating profit, which strips out restructuring and litigation costs, among other items, fell to GBP4.41 billion from GBP6.06 billion, due to lower income and asset disposals.

One month ago, the state-backed bank warned its 2015 results would be dented by the effect of accounting changes on its pension scheme, new charges for past conduct, and an impairment charge in its private bank. That guidance proved accurate.

The bank recorded a fourth-quarter net loss of GBP2.74 billion, narrower than the GBP5.79 billion net loss recorded the corresponding quarter the prior year, but enough to drag down results for the entire year. Most of the bank’s annual litigation and conduct costs came in the fourth quarter, at GBP2.12 billion. Across the year as a whole, those costs rose to GBP3.57 billion from GBP2.19 billion.

Annual restructuring costs more than doubled to GBP2.93 billion from GBP1.15 billion, particularly due to work in the group’s Corporate & Institutional Banking arm, which RBS warned has had a “difficult start” to 2016 amid turmoil in financial markets. The group’s Personal & Business Banking and Commercial & Private Banking divisions traded in line with expectations in the first six weeks of 2016.

The UK government still owns 72.9% of RBS, following Chancellor George Osborne’s decision to sell a 5.4% stake at a loss in August 2015. He sold the shares at 330.0 pence per share. The stock was down 6.7% at 227.70 pence on Friday morning.

Nursing RBS back to health has been no easy task. Chief Executive Ross McEwan said his restructuring of the bank, which he is turning into a smaller operation focused on lending in the UK and Ireland, has helped to improve its financial strength. The common equity tier one ratio, a key measure of financial strength for banks, improved to 15.5% in 2015, as risk-weighted assets fell by GBP113 billion to GBP243 billion.

Although it boasts a strong capital position, RBS said it now expects capital distributions, either through dividends or share buybacks, to take place later than the first quarter of 2017. That is because of the uncertainty facing the bank.

One of the obstacles to returning capital is the shadow of the an outstanding investigation by the US Department of Justice into RBS’s past selling of mortgage-backed securities. RBS does not have clarity on when it can resolve the investigation, and has warned that the cost of doing so could be substantial.

RBS pointed also to challenges in separating Williams & Glyn, the retail bank it must sell as a condition of its GBP45.5 billion government rescue in the financial crisis, as another reason for the likely delay to resuming capital distributions. The bank said it remains “committed” to selling Williams & Glyn by the end of 2017.

With regulatory approval required for capital distributions, RBS said another key milestone on the way to dividends or buybacks is passing the Bank of England’s annual stress test later in 2016.

The group must also retire the so-called dividend access share, which was put in place during its state rescue, if it is to pay dividends. RBS plans on paying the required GBP1.18 billion required to retire the DAS in the first half of 2016, subject to regulatory approval. At the start of 2016, the DAS began accruing a 5.0% coupon, Chief Financial Officer Ewen Stevenson told journalists on a conference call, meaning that it is a good time to retire the instrument.

By Samuel Agini; samagini@alliancenews.com; @samuelagini

Copyright 2016 Alliance News Limited. All Rights Reserved.


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