Backs to the future as legacy issues continue to strangle RBS

Royal Bank of Scotland has today reported a £2 billion loss for the first six months of the year.

Chief executive Ross McEwan said “legacy issues” are continuing to hold back the still 73 per cent state-owned bank after it had been forced to pay out £1.3 billion in litigation and conduct costs over the first six months of 2016.

Mr McEwan said that the Edinburgh-headquartered lender has been attempting to finally put the costs of previous scandals behind it by tackling as many legacy issues as possible over the past two years.

However, he admitted that the effect of these is likely to still be felt with “some hangover” on into 2017.

The issues he cites continue to include mis-selling payment protection insurance (PPI) to customers and litigation related to a £12 billion rights issue in 2008 during the financial crisis.

Between January and June this year RBS set aside a further £450 million to compensate customers who were mis-sold PPI.

The latest provision takes RBS’s total costs related to the scandal towards £5 billion.

Mr McEwan said: “This is the issue when you do have difficulties of this nature some of them do date back 10 years. Some of the PPI issues are dating back to 1993 that we’re having to resolve, as is the industry.

“The core thing for me is that we’ve got a very strong bank here that can take these shocks.”

Banks have so far paid out £24bn in PPI compensation, while the five biggest banks in the UK have set aside about £33bn to deal with the total compensation bill.

RBS also confirmed that it will sell its 300-branch Williams & Glyn high street banking business rather than separate and list it.

As reported earlier this week, Santander UK is understood to be the potential buyer.

RBS said it had spent £345 million restructuring Williams & Glyn to facilitate a flotation and meet the conditions imposed by the EU that included divesting the business in return for receiving billions of pounds in state aid at the height of the financial crisis.

The bank, which was bailout by the British taxpayer 2008 at a cost of £45.5 billion, said restructuring costs across the group totalled £630 million in the first half of 2016 with a figure of more than £1 billion projected for the year as a whole.

Mr McEwan said: “At the end of last year I said with interest rates being lower for a lot longer, we needed to look at not just whether we could separate this bank and put it onto the market through an IPO .

“We have had a bit of interest in people who want to buy this bank and it is quite clear that this bank standing alone would not be as viable as it would be with somebody else. So we’ve had interest and we’re pursuing that interest at the moment.”

Mr McEwan said that RBS was reviewing its rates after the Bank of England cut the interest rate to a historic low of 0.25 per cent on Thursday.

Mr McEwan said: “We are in review now about all of our rates given the announcement… yesterday.”

However, he added that RBS had “very, very few people” who had mortgages on a standard variable rate and argued that the bank charged a lower rate compared to its rivals.

Shares in RBS fell 3.75 per cent to 184.8p in early trading.