RBS has announced the appointment of a new CEO, following Ross McEwan's resignation in April.
Alison Rose, who is currently the Deputy CEO of RBS' NatWest Holdings, and CEO of Commercial and Private Banking, will take up the position of Executive Director and CEO of RBS on 1 November 2019.
The shares rose 1.3% following the announcement.
RBS has done a lot of good work recently. Fines relating to the financial crisis are settled, the government has begun selling down its stake and the bank has paid its first dividend since 2008 - with a chunky special dividend at the half year thrown in as an extra sweetener.
For all the progress, RBS faces some major challenges over the next twelve months or so. Low interest rates and a competitive mortgage market are hampering net interest margins (the difference between what the bank pays out on deposits and charges on loans), and banks appear to be cutting interest rates to win new business.
Should a no-deal Brexit result in an economic slowdown, the combination of lower net interest margins (the difference between what the bank charges on loans and pays on deposits) and rising bad loans would be pretty unpleasant for profits.
In line with its UK peers, RBS is looking to reduce costs, which should provide some insulation against a struggling top line. Unfortunately, that's proving easier said than done, and while the group no-longer thinks it will achieve its target by 2020.
Adding to the challenges facing the new CEO, is the need to unwind the government's 62% shareholding. RBS can now buy back up to 4.99% of that every 12 months if the government's a willing seller. However with an average purchase price of just over £5 a share, the government may hold off on more sales for a while.
The good news is the bank has a massive capital surplus. The Common Equity Tier 1 (CET1) ratio, a key measure of banking capitalisation, is £3.8bn or so above target. That underpins the special dividend, and if the economy escapes Brexit unscathed could support further retunes in future.
That's seen the group return to paying dividends in some style - with a prospective yield of 8.7%, although as ever that's not guaranteed. It's also got the firepower to max out its buyback from the government if should it choose to do so.
As is always the case with banks, all the good news hangs on the economy behaving itself. There's the potential for a Brexit shaped spanner in the works, and sorting out the shareholder register is no easy task either. Despite the subdued share price we think RBS is the riskiest of the UK high street banks at the moment.
Half Year Results (August 2 2019)
Total income rose 6.2%, to £7.1bn, driven by one offs, without which revenue would have fallen 1.7% - net interest margin pressure continues. Operating profits rose 47.5% to £2.7bn, following the non-recurrence of conduct & litigation charges incurred last year.
The bank announced an interim dividend of 2p, and special dividend of 12p.
Net interest income fell 7.4% to £4bn, as a decline in net interest margins to 1.83% more than offset growth in loans to customers. Non-interest income of £3.1bn benefitted from a £1bn boost on the merger of Alawwal Bank with the Saudi British Bank, with underlying non-interest income falling 9.1% to £2.1bn.
Operating expenses fell 13.4% to £4.1bn. However, that was driven by the non-recurrence of fines for mis-selling US mortgage securities, partially offset by higher restructuring costs. Core operating expenses fell 4.8% to £3.4bn as headcount fell by 3,400 or 4.9%. This led the reported cost to income ratio to fall to 57.2%.
Impairment losses for the half more than doubled to £323m, largely driven by single company events in the commercial bank.
High street banking was the largest contributor to first half operating profits despite falling 12.8% to £1.1bn, while Commercial & Private banking profits fell 37.6% to £856m.
The smaller International and NatWest Markets both delivered healthy growth with profits of £194m and £300m respectively. Central delivered a positive result in the half following a £979m loss last year -mostly due to conduct charges.
The bank finished the half with a CET1 ratio, a measure of a bank's capitalisation, of 16%, with underlying capital generation of 0.15 percentage points in the quarter.
Guidance for the remainder of 2019 is unchanged, however RBS no longer expects to achieve a 12% return on equity and less than 50% cost to income ratio in 2020. The bank believes these targets are achievable in the medium term.
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