Royal Bank of Scotland expects a substantial increase in its capital thanks to the sale of businesses over the coming years and intends to return some of it to shareholders, chief executive Ross McEwan has said.
The bank, 78 percent owned by the government, said in February it would shrink its investment banking operations drastically, pulling out of 25 countries across Europe, Asia and the Middle East, to help it refocus on lending in Britain. It is also selling its US bank Citizens.
"As we reduce risk, and make expected divestments over the coming years, we anticipate a substantial increase in our capital as a result. Subject to approval, we intend to return any surplus capital to our shareholders," Mr McEwan told the bank's annual meeting in Edinburgh.
RBS is targeting a core Tier 1 capital ratio of 13 per cent and plans to return any capital about that level.
The bank's core Tier 1 ratio, a key measure of its financial strength, stood at 11.5 per cent at the end of the first quarter and the sale of Citizens is expected to result in a improvement of about 300 basis points.
Paying a dividend or buying back shares would make the bank more attractive to investors and help the government dispose of its stake.
Chancellor George Osborne has said the government will start selling its shares in the coming months. The bank was bailed out at a cost of £45.8 billion to taxpayers during the financial crisis.
Prior to the meeting chairman Sir Philip Hampton said it would take the government several years to sell its entire shareholding in the bank.
"I've long thought the process should have started," Sir Philip, who is to leave the bank this year after six and a half years, told reporters before the meeting.
"It's a lot of stock to shift and I think it will take several years," he said.
Sir Philip oversaw a huge restructuring of RBS, which shed more than £1 trillion of assets as it re-focused on lending to British households and businesses.
However, RBS remains hampered by past misconduct and is expected to have to pay out billions of dollars later this year to settle claims it misled investors in mortgage-backed securities. It has already been fined for the attempted manipulation of foreign exchange and benchmark interest rates.
"The recent fines enforced on banks including RBS for foreign exchange and Libor manipulation are examples of behaviour that cannot be tolerated. There is no place for that behaviour in this bank," Sir Philip told the meeting.
Sir Philip said reform of banks' culture was "well under way but almost certainly not done".
"There is still work to do across the industry to improve culture," he said.
As well as misconduct, RBS was hit by an IT failure last week that led to 600,000 customer transactions failing and was the latest of several technical problems to affect the bank.
Mr McEwan said the bank has begun a "full review" into the matter.
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