RBS posts seventh consecutive annual loss on U.S. writedown, plans further cuts

LONDON – Royal Bank of Scotland Group Plc, Britain’s largest taxpayer-owned lender, posted a seventh straight annual loss after writing down its U.S. unit and forecast higher restructuring costs as it shrinks its investment bank.

The net loss narrowed to 3.5 billion pounds ($5.4 billion) in 2014 from about 9 billion pounds a year earlier as it logged a 4 billion-pound writedown on Citizens Financial Group Inc., RBS said in a statement Thursday.

CEO Ross McEwan, 57, declined to take some of his compensation this year and said “substantial” job losses would ensue from the restructuring. He’s striving to revive earnings and focusing on the U.K. retail market more than six years after the bank’s record bailout. His progress is being hobbled by the cost of the bank’s past conduct, including fines for currency rigging.

RBS is “no longer chasing global market share, but instead focusing squarely on our core strength” in the U.K. and Ireland, McEwan said in the statement. RBS’s corporate and investment bank has made “unacceptable returns,” he said.

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The bank also named Howard Davies as chairman. Davies, 64, the former head of the now-defunct Financial Services Authority, succeeds Philip Hampton, who is to replace Christopher Gent as chairman of GlaxoSmithKline Plc.

RBS also sold $36.5 billion of North American loans to Mizuho Financial Group Inc.

Investment bank

RBS shares rose 2.4 percent to 413 pence at 8:01 a.m. in London, near the 407 pence at which the government says it would break even on its 45.5 billion-pound 2008 bailout.

McEwan said the investment bank would exit central and eastern Europe, the Middle East and Africa, and would “substantially reduce” its presence in the U.S. and Asia.

Operating costs, excluding restructuring, conduct and litigation expenses, fell 11 percent to 12.4 billion pounds in 2014 from 14 billion pounds in the year earlier. RBS said it aims to cut costs by 800 million pounds in 2015.

“This is a plan for a smaller, or focused but ultimately more valuable bank,” and “marks the end of the standalone global investment bank model,” McEwan said.

Operating profit of 3.5 billion pounds missed the 4.1 billion-pound analyst estimate compiled by the company. RBS last posted a net profit in 2007.

PPI redress

RBS has also been embroiled in a string of scandals common to British lenders, which have been forced to redress customers for mis-sold products. It took a 1.2 billion-pound charge in the fourth quarter for conduct and litigation, including 400 million pounds to compensate customers for selling insurance they didn’t want or need. RBS said it expects “claims to tail off over a longer period than previously.”

RBS also took a 1.5 billion-pound charge on deferred tax assets.

The bank said it plans a dividend or share buybacks when its common equity Tier 1 ratio, a measure of financial strength, exceeds 13 percent. “We are creating the potential to build up excess capital, paving the way for distributions to the Government and other shareholders,” McEwan said.

Davies, the bank’s incoming chairman, is chairman of insurer Phoenix Group Holdings and an independent director at Morgan Stanley and Prudential Plc. He quit as a director of the London School of Economics in 2011 over the institution’s acceptance of funds from Libya.

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