RBS posts £2bn loss due to legacy issues and litigation costs

Royal Bank of Scotland (RBS) swung to a larger-than-expected loss in the first half of its financial year, due to hefty litigation and conduct costs.

In the six months to 30 June, the FTSE 100-listed lender posted an operating loss of £274m compared with an £265m operating profit in the corresponding period in 2015, while the attributable loss stood at £2.04bn compared with £179m 12 months prior. Adjusted operating profits for the period, meanwhile, tumbled to £1.16bn from £2.89bn.

The banking giant, which is still 73%-owned by taxpayers, said the disappointing results were attributable to a £1.3bn expense related to conduct and litigation costs.

In the quarter through June, the bank reported an attributable loss of £1.08bn compared with the £280m profit it recorded a year earlier and with analysts' expectations for a £247m loss.

Group chief executive Ross McEwan, who is halfway through a five-year plan aimed at reducing the lender's size, said RBS is still beset by legacy problems. However, he added the lender was "making progress on a lot of legacy issues and transforming this bank".

Meanwhile, RBS also added that it has shelved plans to launch Williams & Glyn as a separate bank after encountering multiple IT disruptions over the last couple of months. The FTSE 100 giant has invested £1.4bn in creating an IT platform for Williams & Glyn, but having failed to do so, said it is now open to sell bank's branches and assets.

So far in 2016, RBS has been the worst performing of major British lenders, with shares tumbling 36% since the turn of the year. The bank's issues have been exacerbated by Britain's vote in favour of leaving the European Union.

Late last month, the lender emerged as one of the biggest losers in a stress test carried out by the London-based European Banking Authority (EBA).

The 2016 stress test results showed that under adverse conditions, among the 51 banks tested, RBS, had the third biggest fall in common equity tier one (CET1), a ratio which acts as a measure of a bank's financial strength. It is calculated by comparing a bank's core equity capital with its total risk-weighted assets.

For RBS, this ratio came in at 8.08%, which was far below the 9.2% average across the sector.