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Extra £900M PPI provision drive RBS to Q3 loss

Royal Bank of Scotland Group PLC swung to a loss in the third quarter from a year-ago profit, mainly on the back of increased provisions for payment protection insurance claims.

The British banking group booked an additional £900 million provision for PPI claims for the quarter, up from £200 million a year ago, citing a higher-than-expected volume of complaints in the run-up to the Aug. 29 deadline for filing claims. RBS said its provisions for PPI claims totaled £6.2 billion to date, of which £5.0 billion had been used by Sept. 30.

The bank reported an unaudited third-quarter loss attributable to ordinary shareholders of £315 million, compared to a restated profit of £448 million in the same period a year ago.

Loss per share for the period was 2.6 pence, compared to EPS of 3.7 pence in the third quarter of 2018. Return on tangible equity was negative 3.8%, compared to 5.4% a year earlier. Excluding the PPI charge, return on tangible equity for the quarter would have been 7.0%, the group noted.

Net interest income fell on a yearly basis to £2.01 billion from £2.15 billion, while noninterest income also decreased, to £897 million from £1.49 billion.

Fees and commissions receivable rose year over year to £808 million from £787 million. Income from trading activities totaled £195 million, down from the year-ago £499 million.

RBS booked third-quarter impairment losses of £213 million, compared to £240 million incurred a year earlier. Operating expenses rose on a yearly basis to £2.70 billion from £2.44 billion, as litigation and conduct costs increased over the period to £750 million from £389 million, mainly due to the PPI provision.

The group said a "particularly challenging" quarter for NatWest Markets PLC also weighed on group income, after legacy items and a 44.4% decline in core income drove the unit to a £193 million operating loss, compared to a profit of £87 million a year ago.

For the nine months to Sept. 30, RBS' attributable profit increased year over year to £1.72 billion from £1.34 billion. EPS for the nine-month period was 14.3 pence, up from the year-ago 11.1 pence.

As of Sept. 30, the group's common equity Tier 1 ratio stood at 15.7%, down from 16.0% at June-end and 16.2% at the end of 2018. Its U.K. leverage ratio was 5.7% as of Sept. 30, compared to 5.9% at the end of June and 6.2% as of 2018-end.