The year did not start well for the Royal Bank of Scotland Group, as it took an unexpected asset hit of over $5 billion, and was forced to put aside additional funds for misconduct performed in the past.
Hit to Dividends
The surprise expenditures have put a dent in the ability of the bank’s CEO, Ross McEwanto, to provide shareholders with a good projected return for this year. According to some analysts, the latest penalties might cut the value of its share buyback program by a very worrying 40 percent, bringing it to around $8.6 billion by 2018, which is a year longer than the shareholder payouts were planned for by RBS.
Among the key issues are the steps that need be taken to overcome a pension deficit will have huge ramifications on the value of tangible net assets, costing around $2.2 billion in Q4. In addition, a lawsuit related to mortgage-backed securities in the U.S. just cost the bank $2.1 billion, with over $700 million also being paid out for improperly marketed payment protection insurance. The total of over $5 billion in charges will push the bank into a full year of loss for 2015.
Immediate Value Drop
RBS shares immediately crashed 5.7 percent, which is the biggest drop in a day since August and adds to the losses for the year with shares of the bank down 17 percent overall.
In reaction to latest charges, RBS announced it is altering its pension program accounting policy in an attempt to decrease capital buffers. Furthermore, the bank commented that during the first quarter it would pay close to $6 billion into its defined-benefit pension program in an attempt to speed up contributions that were not planned to finish before 2023. The RBS pension program was closed about ten years ago to new staff, but is still held by close to 220,000 members.