RBS Profit Wiped Out by U.K. Insurance Mis-Selling Scandal

(Bloomberg) -- Royal Bank of Scotland Group Plc’s profit in the third quarter was wiped out by a 900 million pound ($1.16 billion) charge tied to the long running insurance mis-selling scandal that has plagued most British lenders.

The state-controlled bank also paid the price for being one of Britain’s top lenders, with higher than expected bad loans. RBS’s future is tied to the U.K. economy, whose outlook is clouded by the uncertainty around Brexit. “We are very focused on controlling the controllable,” said Chief Financial Officer Katie Murray in a call with reporters after the results on Thursday. “Our preparations are in place.”

Shares dropped as much as 3.7% in London trading.

Alison Rose will take over as chief executive officer in a week’s time, replacing Ross McEwan, and is expected to lay out her strategy in February. Rose is likely to maintain her predecessor’s drive to slash costs while finding growth in a U.K. market that banks have said is very competitive.

RBS swung to a loss of 8 million pounds in the quarter after it set aside as much as 900 million pounds for claims related to payment protection insurance, or PPI, that customers didn’t want or need. The charge was at the higher end of its announced range of 600-900 million pounds.

Murray was cautious on the potential for further PPI charges. “It would be very brave to say the line has been drawn" under the scandal, she said. However, "the day has ended for new applications to come in and for me that’s the best estimate” for the ultimate cost.

British lenders have spent the past eight years compensating customers who were mis-sold PPI. The policies, some of which dated back decades, were intended to cover missed debt repayments and were often sold using aggressive tactics. In the worst cases, banks misled customers by telling them that PPI was mandatory for loans. RBS has made provisions totalling 6.2 billion pounds to date, the bank said.

RBS also has the largest exposure to consumer credit and corporate loans in the U.K., according to JPMorgan Chase & Co. There has been a string of companies in trouble in the U.K. over recent months, including Thomas Cook Group Plc, which last month crashed under the weight of its debts. Its net impairment loss of 213 million pounds was lower than a year ago but higher than estimates.

Other highlights from RBS’s results:

  • Common equity Tier 1 ratio fell to 15.7% from 16.7% in 3Q last year
  • RBS said NatWest Markets had a “particularly challenging quarter”
    • It posted total income of 150 million pounds from 569 million pounds in the same quarter last year, which it blamed on a poor performance in its rates unit

©2019 Bloomberg L.P.

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