The Royal Bank of Scotland (RBS) might not be the absolute best source of economic prescience, having been nearly destroyed as a result of its lending and acquisition policies at the height of the Global Financial Crisis. RBS had to be bailed out by the British tax payer, being “too big to fail” and is still 62% owned by the public. However, it is warning about potential Brexit headwinds, so it is probably “on the money” this time.
RBS is setting aside a contingency fund of £100 million to handle “the more uncertain economic outlook”. The sum sounds impressive, but is a drop in the ocean compared to the assets currently held by the bank which are worth in excess of £720 billion (down from a pre-crisis peak of £2400 billion). The Bank is the first of the UK’s major high street banks to establish such a fund in the run-up to Brexit. Commenting on the development, its chief executive, Ross McEwan noted: "We have to be prepared for our customers no matter what happens." The bank is anticipating that some of its customers could have difficulties in meeting their obligations to the bank (loan, mortgage and overdrafts) in the event of a bad Brexit outcome (and, lets face it, all Brexit outcomes are worse than the current situation).
To put the contingency fund in perspective, RBS set aside £200 million to cover obligations arising from its miss-selling of payment protection insurance (PPI) in the three months from July to September. The bank has so far allocated £5.3 billion to deal with fallout from the PPI scandal.
Shares in the bank slipped by 5% despite its’ announcing a 14% rise of Q3 profits to £448 million compared to the Q3 2017 position. The market had been expecting a stronger performance which is why the share price fell. The bank made its first dividend payment to share holders since its rescue earlier this month.
Ross McEwan suggested that a no deal Brexit could push the UK economy into a recession, earlier this month in a BBC interview. RBS has obtained the approval of Dutch regulators to serve its EU-based clients out of Amsterdam after Brexit.