RBS sinks into the red at the half-year stage

RBS was pushed deep into the red as a result of provisions to cover possible litigation costs linked to its 2008 rights issue just prior to its emergency rescue by taxpayers..

The mostly state-owned lender reported an attributable loss of £2.05bn at the half-year stage, compared to -£179m of red ink for the same period one year ago. Revenues fell 17% to £6.1bn.

That figure included £1.32bn in litigation and conduct charges, the bulk of which, £1.28bn, were incurred during the second quarter, with £450m of that amount being the result of charges linked to PPI claims.

The lender also booked £630m in restructuring costs over the first six months of 2016.

For the three months ending in June, RBS reported a net loss of £1.08bn versus a profit of £280m for the comparable period of one year ago.

"I will not sit here and commit" - Ewen Stevenson, RBS

On a more hopeful note, the bank led by Ross McEwan said it continued to be on track to deliver its target of £800m in cost reductions for 2016.

Profits before taxes, excluding restructuring costs and litigation charges, were £716m in the second quarter, versus £1.54bn one year ago.

Its Tier-1 common equity ratio slipped from 15.5% to 14.5%.

Weakish outlook

As regards outlook, management suggested it might struggle to achieve its longer-term cost-to-income target ratio of below 55% by 2019, ShoreCap analyst Gary Greenwood said.

"This, we think, is primarily as a result of a weaker outlook for income as progress on costs appears to be tracking in line with management expectations. Management has also indicated that current year-end risk weighted asset exposures in RBS Capital Resolution will be slightly higher than previously anticipated at £30bn-£35bn (previously £30bn) due to unfavourable currency movements, although guidance for £1.5bn of disposal losses remains unchanged (the majority to be incurred over the remainder of the current financial year)."

Williams & Glyn IPO off the table

To take note of, RBS said it was now focused on a trade sale of its Williams & Glyn unit and would not pursue an initial public offering of the business.

Due to the complexities involved in developing a new and independent technology platform for Williams & Glyn the lender said in a statement that: "The board concluded that the risks and costs inherent in the program are such that it would not be prudent to continue with this program.

"RBS will instead prioritize exploring alternative means to achieve divestment."

Will the bank pass on the BoE´s interest rate cuts?

In remarks to Bloomberg TV, RBS´s chief financial officer Ewen Stevenson indicated he did not want to commit to passing on the Bank of England´s interest rate cuts, telling his interviewer: "we will do what we think is fair and reasonable [...] we will look at it [...] I will not sit here and commit".

Some analysts sounds a hopeful note

On a related note, on 4 August analysts at Macquarie told clients: "The market is clearly not easy for UK banks. In a world of free money, margins will only see further pressure. However, the expectation that this will also be accompanied by material asset price corrections / materially higher Impairments looks unlikely to us.

"We have returned the cost of equity for UK banks to a pre-Brexit 10% (from 11%), reflecting current funding markets and adjusted price targets accordingly. With Barclays and RBS both still trading on c0.5x tangible book and Lloyds offering a FY17e dividend yield of 8%, we re-iterate our Outperform recommendations on all three."

Prior to Friday´s figures, RBS stock had lost 36% of its value, amid an environment characterised by pressure on banks´ margins worldwide and even more so in the UK following the referendum vote.

Worries that the disposal of Williams & Glyn might be delayed - thus hampering the bank´s restructuring and a return to dividend payments - had also weighed on its shares.

As of 08:02 BST shares in RBS were lower by 4.90% to 182.60p.