Shore Capital praises RBS clean-up plan

In an unscheduled trading update, RBS confirmed it would make a loss for 2015 and announced a large clean-up in the fourth quarter by setting aside another £500m for PPI provisions, $2.2bn (£1.5bn) for US residential mortgage-backed securities probes, and £4.2bn in its pension fund.

The charges are expected to result in a £3.6bn hit to tangible net asset value and result in a 1.6% reduction in the core tier 1 capital ratio.

"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,” said Ross McEwan.

RBS 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.

Gary Greenwood, analyst at ShoreCap, said while such headlines are disappointing it wasn’t a total surprise and RBS has the balance sheet strength to comfortably absorb the costs.

“To us, this action represents a further cleaning up exercise in the RBS investment story and something that therefore helps to remove uncertainty and improve transparency,” Greenwood said.

“Adjusting our end December 2015 tangible net asset value per share forecast for this announcement would see it reduce to 354p, but with the shares already trading at a 27% discount to this level, we reiterate our positive stance. Buy.”

Shares fell 3.18% to 252.60p at 1039 GMT.