LONDON – Royal Bank of Scotland Group PLC set aside a further 3.1 billion pounds ($5.1 billion) to cover legal and compensation claims as the British government struggles to recoup the cost of bailing out the lender.
Eight top executives, including Chris Sullivan, head of the corporate unit, and Les Matheson, acting head of the consumer division, won’t now receive bonuses for 2013, Edinburgh-based RBS said in a statement today. CEO Ross McEwan had already waived his.
The provision includes 1.9 billion pounds ($3.2 billion) for lawsuits and fines tied mostly to the sale of $91 billion of mortgage-backed securities from 2005 to 2007. The bank is alleged to have misled buyers about the quality of the loans underlying the bonds.
McEwan’s attempt to overhaul the lender by eliminating assets and jobs is being hobbled by the cost of past regulatory missteps. McEwan, who replaced Stephen Hester in October, said in November his plan would lead to 4.5 billion pounds ($7.5 billion) of writedowns in the fourth quarter. More than five years after giving RBS the biggest bank bailout in history, the government is still struggling to cut its 80 percent stake.
“This looks like a new CEO’s attempt to clear the decks and draw a line under the matter,” said Joseph Dickerson, an analyst at Jefferies International in London with a buy recommendation on the stock. “It seems like the higher end of expectations for the mortgage settlement.”
The stock fell 2.2 percent to 332.2 pence ($5.50) in London trading, below the 407-pence ($6.74) price at which the government says it would break even on its holding.
The total also includes 465 million pounds ($771 million) for customers sold insurance on loans they didn’t require, 500 million pounds ($829 million) for clients wrongly sold interest-rate hedging products, and a further 200 million pounds ($332 million) for legal expenses, the lender said.
“The path ahead for RBS is much clearer,” McEwan said. “We have restored our fundamental soundness and have the financial strength to deal with issues like this. We will now become a much simpler, more effective bank for our customers and shareholders.”