After reporting a sharp fall in profits amid Brexit uncertainty, Royal Bank of Scotland Group PLC promised further cost cuts and continued returns to shareholders.
Outgoing CEO Ross McEwan, who on April 25 announced his intention to leave the bank within the year, said RBS made a net attributable profit of £707 million in the first quarter. This was above the company-provided analysts' consensus figure of £546 million, but down from £808 million reported in the same period a year ago. The bank's total income of £3.04 billion was £265 million lower than last year.
Analyst John Cronin at Goodbody Stockbrokers said the bank had beaten consensus forecasts because of lower strategic costs and lower litigation and conduct costs, along with a lower-than-expected tax charge.
"This is a low-quality earnings beat, to say the least, and we think the market will punish RBS severely for it," he said.
RBS shares had fallen 4.2% to 239.4 pence as of 2:13 p.m. London time, and are down nearly 10% so far this year. Since the beginning of McEwan's tenure in October 2013 the share price has fallen more than 30%.
The bank has faced "unprecedented" levels of competitive pressure, and must be careful not to cannibalize business by driving prices down in mortgages, McEwan said.
RBS lent £7.6 billion in new mortgages over the quarter, while net new customer loans increased by £100 million compared to the final quarter of 2018.
"We are comfortable where we are, but it is a highly competitive market and we do not see that going away," McEwan said.
Brexit bites
The CEO also said confusion over Brexit had affected customers of the bank, which is still 62.4%-owned by the British government after being bailed out at a cost of £45 billion during the financial crisis.
"The sustained uncertainty has caused customers to pause investment decisions," he said.
"Commercial customers are paying down and sitting on cash more. That is certainly the case with some of our large corporate clients, for instance. I am surprised if the industry-wide statistics say anything different to that."
He said RBS has doubled its Brexit growth fund for lending to £6 billion.
The bank has also set up offices for its investment banking arm, Natwest Markets, in Amsterdam and acquired banking licences to operate in Frankfurt, to be ready for any post-Brexit scenario.
The investment banking division made an operating loss of £62 million in the quarter. Though this was an improvement on the £203 million loss Natwest Markets made in the prior quarter, the division's total income was down 41.4%.
McEwan said there was further restructuring taking place at Natwest Markets to reduce costs, but that its underlying income was down about 8%, putting its performance in the "middle of the pack" as its rivals, too, suffered in a poor quarter.
He stressed that the bank was focusing intently costs.
The bank reduced costs by £45 million compared with the year-ago quarter, and is committed to a £300-million cost reduction target for the year, and a bigger number in 2020, he said.
"It is always difficult when you have wage inflation and about 60% of our costs are related to people," he said.
Dividend
Last year RBS paid its first dividend since its bailout, with a final dividend of 3.5p per share and a further special dividend of 7.5p per share.
The bank reported a common equity Tier 1 ratio of 16.2% and McEwan said the strong capital position will allow it to return more cash to shareholders.
"We cannot keep growing our capital at the rate we are," he said. "We would end up with a CET1 of near 17% which is not where we want to be. We expect further capital returns in 2019 and we have a target of 14% CET1 by 2021, though this will not be linear."
The bank has set aside more than £5 billion to pay successful claims for miss-selling of payment protection insurance, and is expecting conduct and litigation cost for the year ahead of around £200 million, as it continues to come to be held to account for mistakes made previously.
McEwan, referring to his resignation, said he would stay on until a successor is found, but said he did not expect to be presenting first-quarter results next year.