The chief executive of Royal Bank of Scotland has signalled a return to profit in 2018, finally drawing an end to a decade of losses that have already exceeded £50 billion (€58.4bn) since the financial crisis.
"In the next two years you're going to see a great bank emerge out of this, and I think the public in the UK will be very pleased with it," said Ross McEwan in an interview with the Financial Times.
The Edinburgh-based lender, which owns Ulster Bank, is braced to report its ninth consecutive net annual loss at the end of this week, which analysts estimate could reach £6 billion (€7bn).
The painful loss will come after a $3.8 billion (€3.6bn) provision to cover a looming fine from US authorities for mis-selling mortgage securities and more hefty restructuring expenses.
Since Mr McEwan took charge in 2013, the bank – still 72 per cent owned by the British government – has boosted capital, stripped out costs, and sold vast swaths of assets.
On Friday he was helped by a provisional deal with the EU that may end RBS’s obligation to offload Williams & Glyn as a separate bank in return for spending £750 million on measures to boost small business banking.
However, the bank still faces a potential demand for up to $13 billion from US authorities, and record-low interest rates are squeezing UK banks’ margins, which has forced it to delay profitability targets and embark on a fresh round of cost-cutting.
There has been speculation in the City of London that investors’ patience is wearing thin with Mr McEwan, and he could be replaced this year.
Incentive plan
This may be fuelled by a change the bank is considering making to its long-term incentive plan to allow senior executives to keep part of a share-based incentive award even if they leave before the three-year period is over.
However, Mr McEwan insisted he was still up for the fight. “I want to see it through,” he said, adding “you don’t do this job for the money”.
“It’s hard operating a business when the wind is constantly in your face. It’s like cycling. You cycle in the wind, it is difficult, but when you turn the corner and get a little sense of that wind behind your back, it makes it a lot easier. And I don’t think we’re that far away from that turn.”
RBS calculated that if interest rates over the next few years had stayed at the low point they hit after the Brexit vote last June, it would have lost £1.2 billion of annual revenue. In response, analysts expect it to this week unveil a fresh plan to shed about £800 million this year and a similar amount in 2018.
Mr McEwan said costs were still “far too high” in its core retail and commercial business, and he aims to cut the share of every pound in revenue that is spent on operating expenses from 60p to 50p. – Copyright The Financial Times Limited 2017.
