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RBS delivers Brexit warning after doubling profits

Written by: Danielle Levy
In spite of a strong 2018 which saw taxpayer-backed Royal Bank of Scotland (RBS) double its profits to £1.6bn, it has warned that Brexit could stall its recovery plan.

Over the 12 months to the end of December 2018, RBS saw profits rise from £752m to £1.6bn, marking the second year in a row that the high street bank has recorded a profit.

Following the positive set of results, RBS announced plans to pay a 3.5p final dividend, as well as a 7.5p special dividend. This dividend payment will result in £977m being returned to the Treasury – news that will no doubt be welcomed by the government.

During the year, the bank cut costs by £278m as it continued to move towards a more digital offering.

Looking ahead, chief executive Ross McEwan said the uncertainty and potential turmoil that has been created by Brexit could make it harder for RBS to meet its cost-cutting goals.

He noted that the political uncertainty surrounding Brexit had gone on for too long. The chief executive also warned that political turmoil could make it harder for the bank to hit its target of slashing its cost-to-income ratio to less than 50% by 2020, Reuters reported.

With Brexit uncertainty in mind, RBS has also made £3bn of funding available through a growth fund to help businesses ready their supply chains for the UK’s departure from the EU.

McEwan added: With strong capital and liquidity levels, we are well positioned to support the UK economy. Our total lending to business and commercial customers reached over £100 billion at the end of 2018.”

At 13:18, RBS’s share price was up 2.3% on the day, trading at 247.1p per share.

Tough times ahead

Graham Spooner, investment research analyst at stockbroker The Share Centre, described the results as a “mixed bag”. While progress has been made with RBS’s long-term restructuring plan, the outlook for the year ahead was fairly downbeat – particularly given the reference to significant risks and uncertainties in the external economic, political and regulatory environment.

“The shadow of impairments looks likely to remain over 2019 with the group forecasting they are expected to still rise, although not as high as some forecasts, and the 2020 cost to income ratio targets look “increasingly challenging”, with Brexit likely to increase costs.

“Following on from a poor 2018 the share price so far this year has rallied off a two-year low, these results are unlikely to give a further boost, especially with Brexit looming large. We maintain our medium-risk ‘hold’ recommendation,” Spooner explained.

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