RBS sets aside £6.7bn for US mortages, PPI and pension fund

As well as confirming the bank will make a loss for 2015, Royal Bank of Scotland has announced a large clean-up in the fourth quarter, including £500m of PPI provisions, $2.2bn (£1.5bn) for US residential mortgage-backed securities probes, and £4.2bn poured into its pension fund.

The combined charges will amount to a £2.5bn hit to profits in 2015.

In the unscheduled trading update, chief executive Ross 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."

He later confirmed on a conference call that the bank will make a loss for 2015, which was widely expected.

RBS, which is 73% owned by the UK taxpayer after the credit crunch bailout, said it will also it will write down £498m from its private bank Coutts, due to various factors including expectations of a reduction in future profitability due to the continuing low interest rate environment, a higher tax rate, margin pressure and higher capital allocations.

All together, the changes announced will reduce the bank's tangible net asset value by a combined expected £3.6, a 1.6% fall, or 30p per share.

The pension charge is to cover an accounting deficit of £3.3bn, while the US mortgage payment is to cover for expected payouts for legal action launched by those affected by mis-selling in the lead up to the financial crisis.

Analyst Ian Gordon at Investec warned that the timing and the cost of resolving the many US cases "remains highly uncertain".

But Sandy Chen of Cenkos Securities said the new provision against US RMBS costs brought the total to £3.8bn, which was “closer to the £4-6bn totals that most analysts have had in mind”.

He added that the £500m PPI top-up should be one of the last sizeable provisions as the FCA has proposed setting a 2018/19 deadline on claims.

Gary Greenwood at Shore Capital looked to sooth investors by saying that while such charges are disappointing "they are not necessarily unexpected" and he pointed out that after the sale of Citizens in the US RBS "now has the balance sheet strength to comfortably absorb such costs. Indeed we estimate that the group had approximately £8bn of surplus capital on its balance sheet at the end of September 2015" relative to a 13% core tier 1 ratio benchmark.

"Furthermore, we expect further significant capital build over the coming years as the balance sheet continues to shrink."

Shares in RBS recovered from an initial plunge to sit down 2.5% at 254.3p by 0900 GMT on Wednesday.