RBS earmarks another £2 billion to cover past mistakes

According to estimates on Bloomberg, Royal Bank of Scotland is expected to post $4.43 billion in revenue in the fourth quarter.

It said a provision of £1.5bn related to various litigation claims in the United States concerning mortgage-backed securities.

“Chief Executive Ross McEwan says the bank will “move further and faster in 2016 to clean up the bank and improve our core businesses”. “This announcement is a further step toward addressing legacy issues”.

The bank also said changes to its pension arrangements would also affect TNAV and the capital ratio.

The troubled lender, which is 73 percent owned by the British government, will also make a one-off, lump-sum payment of 4.2 billion pounds ($6 billion) into its pension scheme due to changes in its accounting policy and to cover an accounting deficit.

The fund was closed to new members 10 years ago, but still has around 220,000 members.

The lender took a charge for the lawsuit from the US Federal Housing Finance Agency after recent settlements by other banks, chief financial Ewen Stevenson said.

The additional hit for USA mortgage legal action – which is expected to be settled soon – takes the total charge to £3.8 billion.

“We expect a full government exit in first-half 2016 and dividends and buybacks to return more than 40 percent of market cap by end 2020”, UBS analyst Jason Napier said, as quoted by Interactive Investor. “There is still no provision made for the ongoing DOJ/Attorney General investigations, so there will be more to come in our view”. “Those negotiations haven’t been done”, Mr. McEwan said on a call with reporters.

The bank is also writing down the value of its private bank by GBP498 million over concerns about its future profitability because of low interest rates and higher tax rates.

The bank’s PPI provision sees its total bill for the scandal reach £4.3 billion and Mr McEwan said it was a “lesson to the entire banking industry of the importance of treating customers fairly”.

It says the net impact of paying these contributions early is £1.6bn.

It is now a much different bank, despite the lingering clouds. The share price has already dropped about 14% this year. “There is some incremental bad news here which will cap the scale of the 2017 buyback”.

RBS is set to announce full-year earnings on February 26.