* Sets aside 1.9 bln stg for U.S. home loans mis-selling
* 465 mln stg set aside for mis-sold loan insurance
* 500 mln stg set aside for mis-sold swaps
* Eight top executives to forego bonuses
* Shares close down 2.2 percent
By Matt Scuffham
LONDON, Jan 27 Royal Bank of Scotland (RBS)
is taking billions of pounds in extra charges to cover
the cost of past misdeeds, sending it deep into the red and
resulting in its top executives not receiving any bonuses for
the past year.
The new provisions, revealed in a surprise trading update
following a board meeting on Monday, are a blow to new Chief
Executive Ross McEwan, who is looking to turn around the
fortunes of the part-nationalised lender which was the subject
of a 45 billion pound ($75 billion) government rescue in 2008.
Chairman Philip Hampton said: "RBS did suffer more than most
banks in the crisis and these charges today represent an extra
clearing-up of the mess that was created in the bank in the
run-up to the financial crisis of 2008."
Monday's extra charges leave RBS facing more than 7 billion
pounds being wiped off its 2013 profits, leaving it with a hefty
loss. It said in November it would take a hit of between 4 and
4.5 billion pounds to cover losses on assets in a "bad bank" it
was setting up.
Investec analyst Ian Gordon said he expected the bank would
make an extra 3 billion pounds of losses on top of the 5 billion
he had previously forecast for 2013, making an overall loss of
around 8 billion.
Finance Director Nathan Bostock, who will leave the bank to
join Santander later this year, said the charges will
result in the bank making a "substantial loss" for 2013.
However one of RBS's biggest 20 shareholders said the
provisions were "not a shocker".
"Most people have got 3 or 4 billion pounds worth of
litigation over the next few years and RBS have chosen to
accelerate it a bit. It's still probably part of making it a
clean story in a year or 18 months' time," the shareholder said.
Yet the new charges may set back the government's plans to
start selling off its 82 percent stake in the bank. Hampton had
said the bank would be in a position to start preparing a
prospectus for a sale this year, although some banking industry
and political sources have said three to five years is a more
"Really it's up to the government to decide what the share
price is, what the market's like and how we fit. They can then
decide whether or not they want to sell the shares," Hampton
told reporters on a conference call.
Hampton confirmed the bank was consulting with shareholders
over plans to pay staff bonuses of as much as 200 percent of
salary for 2014. New EU rules would cap bonuses at 100 percent
of salary without such an approval.
"We need to be sensitive to our shareholding structure and
some of the political and media issues around that, but the
ability to pay competitively we think is fundamental to the
prospects for the business," Hampton said.
RBS said eight of its top executives, including the head of
its U.S business Bruce Van Saun, will not receive bonuses for
2013. McEwan had already opted not to take one in either 2013 or
"This is about leadership. I know this team is not
responsible for the past mistakes, but we are the leaders
running the company now and have to show we take accountability
seriously," McEwan said.
RBS said it had set aside 3.1 billion pounds more to deal
with past conduct issues, including 1.9 billion to deal with
claims relating to possible mis-selling of U.S. home loans.
It also said it had set aside an additional 465 million
pounds to compensate customers mis-sold loan insurance and 500
million to compensate small businesses mis-sold complex
interest-rate hedging products.
Another 200 million has been set aside for unnamed conduct
issues and legal expenses.
The new provisions take the total amount RBS has set aside
for the mis-selling of payment protection insurance (PPI) to 3.1
billion pounds and the total for expected interest rate swaps
compensation to 1.25 billion.
The bank, whose shares closed down 2.2 percent at 332.2p, is
due to report its full 2013 results on Feb. 27.
JPMorgan and Deutsche Bank last month
agreed settlements of $4 billion and $1.9 billion respectively
with the Federal Housing Finance Agency for mis-selling U.S.
mortgage-backed securities before the 2008 financial crisis,
which RBS said had given it more visibility on the scale of the
The FHFA has been pursuing a total of 18 banks for allegedly
misrepresenting the quality of the collateral backing securities
during the run-up to the financial crisis.
RBS said it expected to report a core Tier I ratio - a gauge
of a bank's financial strength - of between 8.1 and 8.5 percent
at the end of 2013 under full Basel III capital rules, below
most rivals but above the Basel III target of a minimum 7
percent by 2019, suggesting no immediate pressure to raise funds
to boost its balance sheet.
It reiterated its target of a core Tier I ratio of 11
percent by the end of 2015 and 12 percent by the end of 2016.