RBS on renewed drive to cut costs and shed assets after Bank of England stress test flop
The Royal Bank of Scotland will now renew efforts to slash costs and shed assets, as it tries to bolster its balance sheet after flunking the Bank of England's most recent stress test.
The worst performer of the seven lenders tested, RBS will now be monitored by the Bank's prudential regulation authority and has had to submit a revised capital plan.
"We have taken further important steps in 2016 to enhance our capital strength, but we recognise that we have more to do to restore the bank's stress resilience including resolving outstanding legacy issues," said Ewen Stevenson, RBS' finance chief.
Among the proposals, RBS has said it will boost its efforts to cut its cost base, reduce its risk-weighted assets, and run-down, sell off or otherwise reduce certain non-core assets.
Read more: RBS shares have fallen after its stress test failure
Although the statement did not elaborate on what precisely is on the chopping block, the lender could speed up previously announced plans to pull out of overseas markets or sell off non-performing loan portfolios.
Shareholders seem less than pleased with the stress test outcome, with shares closing down 1.4 per cent at 194.3p.
But the wider public has a reason to be upset as well. As a result of the fallout of the 2008 financial crisis, the bank received a £45bn state bailout, and the government has so far only been able to reduce its original 78 per cent shareholding to 73 per cent.
Read more: Bank of England stress test results – what did the lenders have to say?
"Taxpayers deserve better for their money than seeing a poorly managed bank lurch from crisis to crisis, especially in the wake of revelations about the unacceptable treatment of small businesses by its Global Restructuring Group," said Jonathan Reynolds, Labour's shadow treasury minister.
The bank's biggest problem is the scale of the legacy issues it faces. The lender is up against a slew of legal action, including a looming fine from the US Department of Justice for mis-selling mortgage-backed securities.
RBS is also struggling to ditch its Williams & Glyn branches, as it was told to do as part of its state bailout deal. The bank itself recently admitted it would not make the 2017 sale deadline.
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"RBS will want to be sure it gets shot of Williams & Glyn as soon as possible for sure," said Mike van Dulken, analyst at Accendo Markets. "It’s been a thorn in its restructuring side for seven years, unable to IPO it and several interested parties already having come and gone."
Although both Barclays and Standard Chartered missed targets in the stress test, the Bank of England said it was satisfied with the steps the duo had already taken to turn this around. The other four lenders, including RBS' state bailout fellow Lloyds, all cleared their capital hurdles.
"Of Britain's other lenders, only Lloyds could be said to have passed with something like flying colours, but only RBS flunked across the board," remarked Ken Odeluga, market analyst at City Index.