RBS Makes Special Investor Payout as Brexit Starts to Bite

LAGOS (Capital Markets in Africa) – Royal Bank of Scotland Group Plc plans to award shareholders a special dividend as the British lender seeks to assuage concerns with the U.K.’s departure from the European Union looming.

The bank, which required one of the costliest bailouts in financial history, swung to a better-than-expected profit before tax of 572 million pounds ($733 million) in the fourth quarter. Despite the planned payout, RBS remains one of the strongest capitalized banks in Europe after the Nordic lenders, and beating U.K. rivals including Lloyds Banking Group Plc.

“We believe we have got very strong liquidity and capital that will see the bank through any shocks that may come,” said RBS Chief Executive Officer Ross McEwan on a call after the results. “The political uncertainty has gone on far too long.”

McEwan has made headway in turning around the Edinburgh-based lender, six years into his tenure. RBS is now returning 1.6 billion pounds to shareholders for 2018, including around 1 billion pounds to the U.K. taxpayer through its majority holding. The special payout will be the first of its kind for RBS in around a decade.

RBS shares rose as much as 1.8 percent in London trading.

Brexit Challenge
“The big special dividend shows confidence ahead of Brexit,” said analysts at Barclays Plc. “Overall, the capital return of 1.6 billion pounds is well ahead of what the street was looking for.”

RBS is still targeting a cost income ratio below 50 percent. However, it said this goal was “increasingly challenging” due to the political and economic headwinds facing the U.K. “The economy is cooling off. We are starting to feel it,” McEwan said.

The bank’s management has been cautious, given the uncertainty surrounding Britain’s chaotic exit from the European Union. McEwan has previously said a “bad Brexit” could result in a recession. The bank set aside 100 million pounds in the third quarter to reflect greater uncertainty in the U.K. economy. However, it took only 17 million pounds impairments for the fourth quarter.

Some investors are also expect the government to sell a part of its stake in RBS soon. “We continue to attach a pretty high probability to an accelerated book build announcement on Monday,” said John Cronin, an analyst at Goodbody. “This, in conjunction with the bank using its recently acquired authority to buyback stock could mean that government’s shareholding will reduce to below 50 percent,” before Brexit’s deadline next month.

The government is considering a partial sell-down of its stake in the immediate aftermath of RBS’s annual results, Bloomberg News reported this month.

Other highlights from RBS’s results:

• Common equity Tier 1 ratio falls slightly to 16.2 percent post-dividends
• The bank kept a 2020 target of a return on tangible equity of more than 12 percent
• In 2019, the bank aims to reduce operating costs by about 300 million pounds
• RBS plans to pay 3.5 pence final ordinary dividend and 7.5 pence special dividend for 2018

Source: Bloomberg Business News