RBS and Santander hit by new PPI provisions and writedowns

RBS also put aside £1.5bn in relation to various US residential mortgage-backed securities litigation claims
RBS and Santander hit by new provisions for PPI and writedowns
Santander was also hit by PPI compensation charges

Two British banks set aside billions on Wednesday to cover costs of the UK's payment protection insurance (PPI) scandal.

Royal Bank of Scotland (LON:RBS) set aside another £2bn linked to the payment protection insurance (PPI) scandal and US sub-prime lending legal claims.

RBS said it had made an extra provision of £500mln for PPI claims against its fourth quarter 2015 following measures by the Financial Conduct Authority (FCA).

And Santander announced one-off charges of €1.44bn, of which almost half was made up of compensation for UK customers missold insurance.

Santander group profit was broadly similar compared to the same period a year earlier, coming in at a slightly worse than expected €1.46bn.

It also put aside £1.5bn in relation to various US residential mortgage-backed security litigation claims in the fourth quarter that will reduce tangible net asset value (TNAV) per share at the end of the year by 13p, and the bank's CET 1 capital ratio by 0.6%.

RBS also said it would take a goodwill impairment charge for the quarter of £498mln in its private banking business, although that would not affect TNAV or the capital ratio.

The bank also said changes to its pension arrangements would affect TNAV and the capital ratio. It said it would pay £4.2bn into its main pension scheme up front as a result of accounting changes.

RBS expects to report a CET1 capital ratio of about 15% and TNAV per share of about 350p as at the end of 2015 versus a CET1 capital ratio of 16.2%, pro-forma for the full disposal of US arm Citizens, and TNAV per share of 384p at September 30.

RBS, still majority-owned by the state following a taxpayer bailout in the 2008 financial crisis, is among major banks hit by a string of scandals including PPI mis-selling.

Chief executive Ross McEwan has launched an overhaul to draw a line under the company's disastrous record during the reign of disgraced former chief executive Fred Goodwin.

McEwan took over from former chief executive Stephen Hester, who replaced Goodwin, after Hester was ousted following a row with Chancellor George Osborne over the future direction of the bank.

Hester is now spearheading a recovery drive at insurer RSA, which remains the subject of takeover speculation after a failed bid by Swiss insurer Zurich.

McEwan said: "I am determined to put the issues of the past behind us and make sure RBS is a stronger, safer bank. We will now continue to move further and faster in 2016 to clean up the bank and improve our core businesses.

"We've always been open about the scale of past issues facing RBS and although there is clearly much more to do, this announcement is a further step towards addressing legacy issues."

Analysts said the news from RBS was an ominous start to the bank reporting season. HSBC (LON:HSBA) reports annual results on February 22, followed by Standard Chartered (LON:STAN) on February 23, Lloyds Banking Group (LON:LLOY) on February 25, RBS on February 26 and Barclays (LON:BARC) on March 1.

Investment director at AJ Bell, Russ Mould, said: "A messy and disappointing trading statement from Royal Bank of Scotland gets the banking sector’s reporting season off to a bad start. Unfortunately this could negatively affect broader sentiment given the sector’s importance to UK market earnings and dividend growth forecasts for 2016.

“Poor performance from the banks would be a particular handicap for the FTSE 100 in 2016. Banks represent 13% of the index’s market cap and 21% of forecast profit, based on aggregate consensus analyst forecasts for 2016."

Shares in RBS fell 8.3p, or 3.2%, to 252.6p in mid-morning trading on Wednesday.


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