Bailed Out RBS Faces Shareholder Revolt As Capital Return Plans Delayed Indefinitely

“I haven’t found any nuggets of good news.”

That’s from Investec’s Ian Gordon, who isn’t particularly enamored with RBS, which on Friday reported its eighth consecutive annual loss.

The bank - which was bailed out to the tune of $64 billion by British taxpayers during the depths of the crisis - lost $2.77 billion last year, which was actually a marked improvement from 2014. Pre-tax profit which strips away all of the bad things like litigation plunged by nearly a third to £4.4 billion, just shy of consensus.

Nearly three quarters of the bank is still owned British taxpayers and it exists in a sort of limbo as CEO Ross McEwan dumps assets and retreats from foreign markets. As FT reminds us, RBS is “shrinking the investment bank and exiting 25 of the 38 countries it operates in, to focus on UK retail and commercial banking.”

Net interest income (so, income from how banks used to make money in a bygone era) was down 5%  Y/Y but the real story here is charge-offs. Last year’s abysmal results were attributable to nearly £3 billion in restructuring charges and £3.5 billion in charges for bad “conduct” which includes FX rigging and the sale of shoddy mortgage bonds. As The Guardian reports, “the legal warnings attached to the bank’s accounts also include warnings about an ongoing court case in the UK from investors who backed a cash call before its 2008 taxpayer bailout, court cases in the US involving Libor rigging and cases accusing the bank of funding terrorism.”

So, all sorts of malfeasance.

Shares plunged after the results were announced primarily because it now appears that plans to return capital to shareholders have been postponed - indefinitely.

"Management previously guided that dividend payments or share buybacks could begin as early as next year, once it has cleared the UK’s stress tests, carried out the bulk of its restructuring plan, settled with US regulators over mis-selling mortgage-backed securities, and separated the challenger bank Williams & Glyn," FT notes. Now, however, "outstanding issues" mean it's "more likely that capital distributions will resume later." And by "later" the bank means after Q1 2017. 

"You’ve got to be taking a greater than one year view on capital return and a three-to-four year view on normalization of earnings, and that’s a timeframe which exceeds most investors’ appetite," the abovementioned Ian Gordon says. 

Part of the problem is that RBS has no idea when it will be able to settle with FHFA over $32 billion in RMBS the bank sold prior to the crisis. On the call, CFO Ewen Stevenson said RBS wasn't currently in "substantive" talks to settle the issue. Additionally, RBS is having trouble selling Williams & Glyn. "[There are] time delays," McEwan said. "It's the most complex thing going on [right now]." 

“Clearly there are big conduct charges we still face, not least in relation to U.S. mortgage-backed securities," McEwan added.

Yes, "clearly" there are conduct charges and all sorts of other problems. As you can see from the above, there's really no telling when all of this will be sorted out. This is an attempt to right the ship and pay for the sins of an absurdly complex institution and that process could well take more than a decade, a fact shareholders should have realized from the start. As for UK taxpayers, well, they're deeply underwater: 

"We cannot be a market leader in pay.” said chairman Sir Howard Davies, explaining why the bank pays such "meager" salaries.  “[But working at RBS] is extremely worthwhile from a national point of view."

Right. But it's certainly not "extremely worthwhile" from a financial point of view. Except for the fact that at least 121 people are making €1 million or more per year, including McEwan who The Guardian notes has "who has received the highest pay for a chief executive of the bank since the bailout."

And what have Brits gotten in return, you ask? This:

“People are disappointed,” George Godber, at Miton Group Plc in London told Bloomberg. “It’s later return of capital and the market is focused on income. You have to be certain on what the value of the business is and it keeps getting shunted back.” 

Indeed. The bank has logged £50 billion in losses since it was bailed out by taxpayers in 2008. Perhaps it's time to just close the doors.

Read the full annual report here