RBS's New Brexit Provision Overshadows McEwan's Capital Strength

(Bloomberg) -- Royal Bank of Scotland Group Plc set aside 100 million pounds ($128 million) of provisions to reflect greater uncertainty around Brexit, overshadowing the better-than-expected capital strength Chief Executive Officer Ross McEwan hopes to use to reward shareholders.

  • Third-quarter operating profit before tax surged 10 percent to 961 million pounds, beating the consensus of 892 million pounds.

Key Insights

  • This state-owned lender is the only one in Britain to have made such a provision, which McEwan said reflected “quite a bit more uncertainty in the market” as Brexit negotiations drag on.
  • “You are seeing very large companies just pause their investment until they get certainty,” McEwan said, adding that there were no impairments or stress coming through in the SME and retail sector.
  • McEwan was keen to say 100 million pounds was “very low” in context, and that his meeting with Prime Minister Theresa May alongside other CEOs last week gave him an “optimistic sense” on Brexit talks.
  • RBS may soon be ready for a special dividend or buyback after the common equity Tier 1 ratio rose to 16.7 percent, beating the 16.4 percent consensus analyst estimate. First, it has to get through stress tests, and McEwan said he won’t have more to say on capital return before then.

Market Reaction

  • The shares dropped 4 percent at 8:05 a.m. in London, the biggest decline in the Bloomberg Europe 500 banks index.

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