Royal Bank of Scotland's (RBS) first-quarter results reflect lower interest income and expenses.
Best known as Britain's biggest financial crisis failure, some investors and analysts view majority state-owned Royal Bank of Scotland as the lender likely to emerge strongest from the coronavirus downturn. RBS had built the largest capital surplus of any major British bank before the pandemic struck, some 14 billion pounds ($17 billion) above the regulatory minimum, and had hoped to use much of this to buy back the government's 62% stake. Now investors are betting this capital cushion, which will help it absorb loan losses resulting from the economic crunch, will help RBS gain greater market share and potentially restore a dividend ahead of rivals.
British banks should use their substantial capital and liquidity buffers to support the economy hit by the coronavirus pandemic, the Bank of England said on Monday. The BoE's Prudential Regulation Authority (PRA) said it expects banks to focus on continuing to support customers. "Banks are expected to use their liquidity buffers in doing so, even if it means liquidity coverage ratios go significantly below 100%," the PRA said in guidance to lenders.
Best known as Britain's biggest financial crisis failure, some investors and analysts view majority state-owned Royal Bank of Scotland as the lender likely to emerge strongest from the coronavirus downturn. RBS had built the largest capital surplus of any major British bank before the pandemic struck, some 14 billion pounds ($17 billion) above the regulatory minimum, and had hoped to use much of this to buy back the government's 62% stake. Now investors are betting this capital cushion, which will help it absorb loan losses resulting from the economic crunch, will help RBS gain greater market share and potentially restore a dividend ahead of rivals.
A "desk top" stress test has shown that top banks and building societies can withstand the anticipated economic fallout from the coronavirus pandemic, the Bank of England said on Thursday. The BoE's Financial Stability Report said the stress test was based on an economic scenario outlined by the Bank's Monetary Policy Report (MPR).
Limits on elevators, thermal imaging and temperature checks will greet a first wave of traders and bankers in Britain preparing to return to offices under new norms to tackle the coronavirus. Britain's financial sector is working to bring staff back to city-centre workplaces, which were hastily evacuated as the government imposed a lockdown, leaving the normally humming Canary Wharf and City of London financial districts deserted. Most financial firms have kept small teams in offices through the pandemic, and are now preparing for up to 10% of their staff to return over the next few months, pending government approval, sources familiar with the plans said.
(Bloomberg) -- Royal Bank of Scotland Group Plc is the latest bank to book a hefty charge as the coronavirus pandemic hits borrowers’ health and finances.The bank set aside 802 million pounds ($1 billion) for soured loans, almost 10 times the charge it booked a year ago. RBS’s rivals Barclays Plc and Lloyds Banking Group Plc booked bigger impairments this week as the industry braces for a surge in struggling borrowers.“Although the outlook remains extremely uncertain, we approach the crisis from a position of strength, with confidence in our balance sheet and focus on our strategic priorities.” Chief Executive Officer Alison Rose said in a statement on Friday.Its shares rose as much as 4.9% in early London trading, reversing some of the losses it sustained after rival Lloyds scrapped its targets on Thursday.RBS said “it would be inappropriate to provide an update on medium term outlook at this time.” British banks have made wide-ranging provisions for the uncertainty posed by the pandemic, which has left the U.K. on lockdown since March 23. Lloyds said this week that its 1.4 billion-pound charge was “front-loaded,” and that it could take further impairments this year if more borrowers begin to falter.For the first quarter, though, RBS beat forecasts with an operating profit before tax of 519 million pounds. Its performance relies heavily on British consumers and businesses, leaving it more vulnerable to economic headwinds than rivals such as Barclays and Standard Chartered Plc, which have enjoyed a boost from their financial-markets businesses.Only a fraction of the bank’s personal loan book is unsecured, CEO Rose said on a call, enabling it to take lower provisions for defaults than competitors with larger credit card exposures. RBS’s 79 billion-pound corporate loan book includes 9.4 billion pounds of debt held by the leisure sector and a similar sum tied to retail, both of which have been hit hard by the lockdown.The government’s Office for Budget Responsibility is forecasting a contraction of 35% in the second quarter, although the full effects of the pandemic are still unclear.RBS is the biggest participant in the U.K. government’s Coronavirus Business Interruption Loan Scheme, lending 1.4 billion pounds, and has offered mortgage payment holidays to 190,000 borrowers who are struggling during the outbreak. Rose said despite the widespread state support, “inevitably not every business is going to survive.”The bank also said it will close its digital retail bank Bó and instead focus on Mettle, its online platform that until now was dedicated to small and medium enterprises. Mark Bailie, who founded Bó, left the group earlier this year.(Updates with details on digital bank in the last paragraph)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
More departures are taking place at Bó, the digital bank developed by RBS-owned Natwest. Following the departure of Bó CEO Mark Bailie in January, the latest to seek a new opportunity is chief product officer Ollie Purdue, TechCrunch has learned. According to sources, Purdue is joining Antler, the company builder and early-stage venture capital firm that operates in Amsterdam, London, New York, Stockholm, Sydney, Nairobi and Singapore.
Royal Bank of Scotland Chief Executive Alison Rose said on Thursday a "significant majority" of more than 50,000 staff working from home since the coronavirus lockdown would continue to do so until September, according to a memo seen by Reuters. RBS has also temporarily banned hot-desking and said it would place at least one empty desk in between people to ensure social distancing. Since lockdown started, around 10,000 staff have continued to work in branches and some offices.
RBS earnings call for the period ending March 31, 2020.
(Bloomberg) -- The U.K.’s banking industry has the financial strength to withstand the coronavirus pandemic, even though the central bank projects credit losses of about 80 billion pounds ($99 billion) in its latest stress test.The Bank of England said lenders could suffer impairments worth 3.5% of their loans to households and businesses by the end of 2021, if the economy deteriorates sharply. However, it emphasized that Britain’s banking system “is in a stronger position due to the regulatory reforms implemented after the 2008 financial crisis,” with enough capital to absorb losses and extra state support introduced during the pandemic to help borrowers and the economy.The BOE and regulators around the world have raced to help banks withstand the financial strains of the virus outbreak by reducing capital requirements, delaying new rules and making it easier for employees to work from home while complying with rules.Under the BOE’s stress test model published Thursday, corporate defaults could account for 19 billion pounds of losses despite a swath of government support programs, while consumer credit losses could spike and a 4 billion-pound hit from mortgage losses would be tempered by the payment holidays introduced in March.Trading desks could face 7 billion pounds of losses under this stress scenario, although the BOE noted that banks’ trading books are much smaller now than they were in the 2008 crisis.British lenders have already begun to brace themselves for the pandemic’s effects, last week setting aside billions of pounds to cover soured loans as the lockdown sends the U.K. economy into steep recession. They also warned of tough times ahead as the pandemic and its aftershocks cripple corporate clients in entire industries.The test included Barclays Plc, HSBC Holdings Plc, Lloyds Banking Group Plc, Nationwide, Royal Bank of Scotland Group Plc, Santander UK and Standard Chartered Plc.The central bank offered further relief on Thursday, announcing that it was cutting the capital requirement known as Pillar 2A to a “nominal amount” as volatility was making estimates difficult.(Adds detail on test and background from third paragraph)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
When a payroll glitch left Natalie Gallagher so short of cash this month she couldn't afford her bus fare to work, she turned to her usual lender Amigo for an emergency top-up loan. Like many of the lenders that thousands of higher-risk borrowers in Britain depend on, Amigo had tightened its criteria for handing out cash in the wake of the coronavirus. "Amigo was my only real option."
(Bloomberg Opinion) -- The Covid-19 pandemic is even starting to affect the highly specialized world of bank capital.Lloyds Banking Group Plc, a large British lender, has just become the third European bank this year to do what was once unthinkable and decline to redeem an outstanding “CoCo” bond at its first call date. This form of hybrid debt — also known as additional tier 1 (or AT1) regulatory capital — is especially risky because the investor bears the losses if the bank fails, and it usually pays a generous interest rate.Because of their special status, there had always been a tacit understanding — though not a legal obligation — that investors would be able to cash in the bonds at the first redemption date, if they so chose, at least with European CoCos. But that tradition looks to be well and truly over among the stronger banks.Lloyds cited “extraordinary market challenges presented by Covid-19” as the reason to extend its own AT1s. With its dividend payments to equity holders suspended currently at the behest of the U.K. financial regulator, because of the coronavirus crisis, it would have looked rum indeed if the bank had cut its equity capital for the benefit of a small group of bondholders. This select bunch ought to have known the risk.The financial savings for Lloyds are just as relevant. By retaining the 6.375% 750 million-euro ($824 million) CoCo, it will switch to paying a floating coupon just above 5%. If it had redeemed the AT1 and issued a replacement bond, it would have had to offer a higher coupon to reflect the current market, probably one above 7%.Lloyds has a solid Tier 1 capital base of 16.9%, so in normal times it would have been expected to keep its bond investors happy. But regulatory pressure and the increase in yields on risky debt during the current crisis has forced even the better capitalized banks to prioritize their financing costs.Spain’s Banco Santander SA set the precedent last year of a blue-chip lender not redeeming its AT1 debt out of pure economic self-interest. That’s standard practice in the U.S. market, but Santander’s action caused a storm here in Europe. Germany’s Deutsche Bank AG and Aareal Bank AG have also skipped calls this year.This Americanization of the European CoCo market looks like a trend. ABN Amro Bank NV and Royal Bank of Scotland Group Plc both have AT1 bonds with calls due this summer, and Barclays Plc is due later in the year. They may follow the Lloyds example and retain cheap AT1 capital raised at lower yields.Banks have benefited hugely from AT1 issues as regulators count it as permanent equity (although it was almost always redeemed), meaning it counts toward capital buffers. And the cost is much lower for the issuer than true perpetual debt. Investors have been happy to play along as the yields far exceed those on bank debt with legally enforceable redemption dates.The Lloyds move is a wake-up call for AT1 investors.While the bigger banks’ CoCo bonds will probably still be popular, even if the call date is no longer guaranteed implicitly, the change might do more damage to weaker lenders. If investors no longer feel confident that their money will automatically be returned at the first redemption date, they’ll demand a higher return for the risk.The CoCo market only reopened tentatively this month with a new Bank of Ireland Group Plc deal. The Irish lender did what Lloyds refused to do and redeemed its existing AT1 and reissued at a higher cost. At least it managed to keep its investors happy and on board.This new separation between large stable banks being able to act according to their own economic advantage, while smaller rivals have to offer chunkier premiums, is a worry for the health of the financial system. It ought to be an urgent matter for consideration by European regulators. Forcing the strong banks to keep capital has consequences for their less illustrious peers. This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Marcus Ashworth is a Bloomberg Opinion columnist covering European markets. He spent three decades in the banking industry, most recently as chief markets strategist at Haitong Securities in London.For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
British stocks and U.S. futures moved lower early on a quiet Friday as investors digested earnings warnings, gloomy economic data and the potential resumption of U.S.-China trade tensions.
One more recent plan being considered was to reposition Bó as a banking app for teens, a segment thought to be underserved even amongst digital-first providers. Instead, the bank plans to focus on Mettle, its small business banking challenger brand, which, I understand, had already begun to assimilate Bó after the two respective teams were moved into the same building. “The circumstances have changed,” RBS CEO Alison Rose told Yahoo Finance.
Royal Bank of Scotland's profit halved in the first quarter as it set aside 802 million pounds ($1 billion) to cover an expected spike in bad loans due to the coronavirus pandemic, the state-backed lender said on Friday. Despite the slide in profits, the bank's results beat analyst expectations in part thanks to a 9% rise in income from a spike in trading in volatile markets at its previously loss-making investment bank NatWest Markets. RBS Chief Executive Alison Rose said the bank was nonetheless still committed to cutting back the division and also said it would wind down digital bank Bó after it attracted just 11,000 customers since its launch in November.
RBS is the latest big bank to see earnings slashed by the global virus crisis. On Friday (May 1) the UK lender said profits all but halved in the first quarter. They sank to about 650 million dollars. That as the bank set aside a billion dollars to cover an expected surge in bad loans. For all that, it still beat forecasts. RBS was helped by a 9% rise in income at its investment bank, NatWest. That flowed from the frenzied trading caused by market volatility. The division is still set to be scaled back though, after persistent losses. RBS will also scrap digital bank Bo. It has attracted just 11,000 customers following a launch in November. Britain’s four biggest lenders - RBS, Barclays, HSBC and Lloyds - have now set aside over 8 billion dollars to cover loan defaults. They’ve also committed to deliver over 400 billion dollars in taxpayer-backed loans for struggling companies. RBS perhaps feels the most pressure, as it's majority taxpayer-owned. That after it was bailed out by the state during the 2008 global financial crisis. Friday’s numbers saw its shares up around 5% by mid afternoon.
British state-backed lender Royal Bank of Scotland said its profits halved in the first quarter, as it set aside 802 million pounds ($1.01 billion) against a likely spike in bad loans due to the coronavirus pandemic. RBS on Friday posted pre-tax profits of 519 million pounds for the period, down from 1 billion pounds the previous year, just ahead of the 415 million pound average of analyst forecasts compiled by the bank. The lender reiterated its strategic priorities set out by CEO Alison Rose in February, but said it would wind down Bó, the digital bank only launched last November, as a customer facing brand.
British state-backed lender NatWest
Many of the City of London's bankers and traders will be working from their kitchens or bedrooms for at least a year under some scenarios being planned by finance companies in Britain. Banks, insurance companies and asset managers have had to work remotely since the country locked down in March to fight the coronavirus pandemic. The radical shift from trading floors to people's homes has been deemed a big success in coping with record breaking volatility across financial markets.