RBS takes major hit for past misconduct issues

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Royal Bank of Scotland is taking billions of pounds in extra charges to cover the cost of past misdeeds, sending it deep into the red and resulting in its top executives not receiving any bonuses for the past year.

The new provisions, revealed in a surprise trading update following a board meeting on Monday, are a blow to new Chief Executive Ross McEwan, who is looking to turn around the fortunes of the part-nationalized lender which was the subject of a 45 billion pound ($75 billion) government rescue in 2008.

Chairman Philip Hampton said: "RBS did suffer more than most banks in the crisis and these charges today represent an extra clearing-up of the mess that was created in the bank in the run-up to the financial crisis of 2008."

Monday's extra charges leave RBS facing more than 7 billion pounds being wiped off its 2013 profits, leaving it with a hefty loss. It said in November it would take a hit of between 4 and 4.5 billion pounds to cover losses on assets in a "bad bank" it was setting up.

Investec analyst Ian Gordon said he expected the bank would make an extra 3 billion pounds of losses on top of the 5 billion he had previously forecast for 2013, making an overall loss of around 8 billion pounds.

(Read more: RBS bonuses: Cameron to veto plans for a hike)

Finance Director Nathan Bostock, who will leave the bank to join Santander later this year, said the charges will result in the bank making a "substantial loss" for 2013.

However one of RBS's biggest 20 shareholders said the provisions were "not a shocker."

"Most people have got 3 or 4 billion pounds worth of litigation over the next few years and RBS have chosen to accelerate it a bit. It's still probably part of making it a clean story in a year or 18 months' time," the shareholder said.

Yet the new charges may set back the government's plans to start selling off its 82 percent stake in the bank. Hampton had said the bank would be in a position to start preparing a prospectus for a sale this year, although some banking industry and political sources have said three to five years is a more realistic timetable.

"Really it's up to the government to decide what the share price is, what the market's like and how we fit. They can then decide whether or not they want to sell the shares," Hampton told reporters on a conference call.

Hampton confirmed the bank was consulting with shareholders over plans to pay staff bonuses of as much as 200 percent of salary for 2014. New EU rules would cap bonuses at 100 percent of salary without such an approval.

"We need to be sensitive to our shareholding structure and some of the political and media issues around that, but the ability to pay competitively we think is fundamental to the prospects for the business," Hampton said.

RBS said eight of its top executives, including the head of its U.S. business Bruce Van Saun, will not receive bonuses for 2013. McEwan had already opted not to take one in either 2013 or 2014.

"This is about leadership. I know this team is not responsible for the past mistakes, but we are the leaders running the company now and have to show we take accountability seriously," McEwan said.

RBS said it had set aside 3.1 billion pounds more to deal with past conduct issues, including 1.9 billion to deal with claims relating to possible mis-selling of U.S. home loans.

It also said it had set aside an additional 465 million pounds to compensate customers mis-sold loan insurance and 500 million to compensate small businesses mis-sold complex interest-rate hedging products.

Another 200 million has been set aside for unnamed conduct issues and legal expenses.

The new provisions take the total amount RBS has set aside for the mis-selling of payment protection insurance (PPI) to 3.1 billion pounds and the total for expected interest rate swaps compensation to 1.25 billion.

The bank, whose shares closed down 2.2 percent, is due to report its full 2013 results on Feb. 27.

JPMorgan and Deutsche Bank last month agreed settlements of $4 billion (2 billion pounds) and $1.9 billion (1.1 billion pounds) respectively with the Federal Housing Finance Agency for mis-selling U.S. mortgage-backed securities before the 2008 financial crisis, which RBS said had given it more visibility on the scale of the claims.

The FHFA has been pursuing a total of 18 banks for allegedly misrepresenting the quality of the collateral backing securities during the run-up to the financial crisis.

RBS said it expected to report a core Tier I ratio - a gauge of a bank's financial strength - of between 8.1 and 8.5 percent at the end of 2013 under full Basel III capital rules, below most rivals but above the Basel III target of a minimum 7 percent by 2019, suggesting no immediate pressure to raise funds to boost its balance sheet.

It reiterated its target of a core Tier I ratio of 11 percent by the end of 2015 and 12 percent by the end of 2016.

—By Reuters