Royal Bank of Scotland's profit hit by litigation and costs

LONDON – Royal Bank of Scotland said Friday that it swung to a loss in the third quarter as the taxpayer-controlled lender was stung by charges for past bad behaviour.

RBS reported a net loss of 469 million pounds ($571 million), compared with net income of 940 million pounds in the third quarter of last year, when it posted a 1.15 billion-pound gain on the sale of Citizens Bank in the United States.

The bank, which is 73 per cent-owned by the British taxpayer, also said it would miss a Dec. 31 deadline to sell its Williams & Glyn unit. RBS needs to sell the branches to meet conditions imposed by the European Union when the bank was bailed out by the government.

RBS argued, though, that it was on the right track, reporting that operating profit before one-time items rose 61 per cent to 1.33 billion pounds.

“We’ve said that 2015 and 2016 would be noisy as we work through legacy issues and transform this bank for customers,” Chief Executive Ross McEwan said. “These results reflect that noise.”

The bank was hit by 425 million pounds in conduct and litigation charges, largely linked to the sale of mortgage-backed securities in the United States. That was more than three times the 129 million pounds of such charges RBS reported in the third quarter of 2015.

Restructuring costs fell 45 per cent to 469 million pounds.

RBS also said that current conditions, with low interest rates and slow economic growth, present “a range of uncertainties.” As a result, the bank doesn’t expect to meet its targets for cost-to-income ratio and returns by 2019 as previously indicated.

Analysts were unimpressed.

“RBS has yet to emerge from the weight of misconduct fines, restructuring costs, the distraction of the sale of the Williams & Glyn unit, the spectre of the government stake and the lack of a dividend payment,” said Richard Hunter, head of research at Wilson King Investment Management. “Meanwhile, the bank’s longer-term targets have also been temporarily shelved in the face of its ongoing challenges.”