ROYAL Bank of Scotland’s outgoing chief executive has lamented ongoing Brexit uncertainty and pressure in the mortgage market as falling margins contributed to a decline in first-quarter profits.
Shares in the bank plunged by four per cent after it reported an operating profit of £1 billion for the quarter ended March 31, down from £1.2bn for the same period last year. The fall wiped £1.2bn from its stock market value. Bottom line profits were £707 million compared with £808m in the first quarter of 2018.
Ross McEwan, who announced on Thursday he would be standing down as chief executive, pointed to tough conditions in the mortgage market as total income dipped by £265m to £3bn.
Scott Wright: McEwan's successor will have work cut out at RBS
The bank’s net interest margin, a key performance measure, was 1.89 per cent for the period, versus 2.04%, amid “unprecedented” pressure in the mortgage market.
Mr McEwan said: “In personal banking, the UK mortgage market continues to show unprecedented levels of competitive pressures. Average rates across a range of loan to values remain at historic lows.”
Mr McEwan underlined the effects of continuing Brexit uncertainty, which he said was continuing to stall investment activity. He signalled the bank, which remains 62 per cent owned by UK taxpayers, had prepared for Brexit by getting its NatWest subsidiary in Amsterdam up and running, with licences now secured to provide access to EU payment structures.
Mr McEwan said: “The sustained uncertainty is causing customers to pause some investment decisions.”
Asked whether the bank intended to make further financial provision for Brexit, having previously set aside £100 million to account for bad debts rising in the event of a disorderly Brexit, finance chief Katie Murray said: “We obviously look at this on a quarter by quarter basis. At this stage, there is no indication it would be appropriate to take anymore at this point.”
Responding to a question about whether the Brexit impasse would lead to a delay in the UK Government selling down its stake, Mr McEwan said: “Let’s see what happens with this next set of negotiations. It’s quite clear… that people are pausing, and you are starting to see that coming through in some of our numbers, particularly on the commercial side of the business.”
Ms Murray added: “Clearly this something for the Government. They will take a view there.”
The bank said total income from commercial and private banking was 6.6% lower at £1.08bn. Caution exerted by business customers contributed to net loans edging down £600m to £100.8bn. And there was a disappointing outcome for the bank’s investment banking operation, NatWest Markets, with uncertain market conditions cited as core income dipped by 8.5% to £377m.
Scott Wright: McEwan's successor will have work cut out at RBS
Russ Mould, investment director at stockbroker AJ Bell, said: “Although (soon-to-be-ex-) chief executive Ross McEwan’s cautious comments about Brexit will grab most of the headlines it is ongoing pressure on Royal Bank of Scotland’s net interest margin that is the real reason for the share price weakness today.
“This will reflect competition for deposits and loans from established rivals, as well as challenger banks and fintech start-ups, but also the unintended consequences of central bank policy and near-record-low interest rates.”
Alison Rose, who heads Royal’s corporate, commercial and private banking business, and is deputy chief executive and director of its ring-fenced operations, NatWest Holdings, has been installed as an early favourite to succeed Mr McEwan. On his decision to step down, Mr McEwan said: “It has been an absolute privilege and an honour to lead this great bank, but now it feels the right time to step aside and for a new CEO to lead the bank through its next phase. We have delivered the strategy we set out in 2013 and the bank is now on a very strong and profitable footing.”
Shares in the bank closed down 10p at 240p.
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