Royal Bank of Scotland has played down the likelihood of any imminent sell-off of the government's 83% stake, even as it hailed the achievement of "important recovery milestones".
The bailed out bank signalled it was ready to resume payments to bondholders – which were banned until the end of last month under EU state aid rules – and said it would next week pay back the last of the cash borrowed to keep it afloat during the banking crisis.
But despite these "milestones", RBS remained loss-making, reporting a £1.4bn loss compared with £116m a year ago – although it was largely caused by a £2.5bn change in the value of the bank's debt. It also took an extra £125m charge for compensating customers who were mis-sold payment protection insurance.
The taxpayer is sitting on a £22bn loss on its stake in the bank, bought at an average price of 50p, even after the 2% rise in the shares to 25p, which will prohibit any sell off by the government.
"As far as I'm aware there is no desire to sell at the current share price," said Stephen Hester, chief executive of RBS, despite speculation that a stake could be sold to Middle Eastern investors.
The operating profits, which Hester prefers to focus on, were £1.2bn which he said showed that "excellent progress continues in removing 'mistakes' of the past".
Parachuted in to run RBS during its October 2008 bailout, Hester has previously said that investors regard buying bank shares as "dumb" and repeated that on Friday, saying "the share price is sending a very clear signal".
Hester, who has waived a near £1m bonus following political pressure, also admitted it would be "at least a year" until any decision could be made on resuming dividend payments to shareholders. "One of the manifestations of the end state of RBS is that we should be a strong dividend payer and the issue is how we get there."
The bank is planning a one-for-10 share consolidation – which would move the share price to 248p and is intended to reduce volatility in its price – which Hester described as "a matter of symbolisation in terms of presenting a new face to the capital markets".
He described the move to resume payments to bondholders as an "important recovery milestone" and pointed out that the bank would next week pay off the last of the funds it borrowed from the Bank of England – some £163bn – during the crisis. The government has made a profit of at least £1bn on the loans. RBS is still borrowing from the European Central Bank.
But the government is still insuring the bank's most troublesome assets through the Asset Protection Scheme although RBS may be able to exit the scheme when it will have paid a total of £2.5bn in fees. RBS, like other UK banks, is being subjected to "stress tests" by the FSA, which will influence its ability to leave the scheme, RBS said.
Ian Gordon, an analyst at Investec who forecasts a share price of 30p by Christmas, said: "It is hardly a sexy story, but give credit for the very strong evidence of balance sheet repair."
As with its rivals, RBS continues to be hit by charges to compensate customers for PPI mis-selling and it has now set aside £1.2bn for claims. By the end of March it had paid out £501m and Hester concurred with António Horta-Osório, chief executive of Lloyds, who earlier this week hit out against bogus claims .
In Ireland – where Hester said the bank had granted some "stupid" loans – the bank continues to face "exceedingly difficult market conditions" and incurred an operating loss of £310m as customers fell behind on debt repayments.
In the UK, Hester said that the official GDP data – which showed a contraction of 0.2% in the first quarter taking the UK back into recession – did not paint a true picture of the economy which he thought was a "bit better than those GDP numbers but it's still pretty flat". RBS's lending, measured by balances drawn down by customers, fell 1% and Hester said: "At the moment customers are holding their fire."
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