LONDON (Reuters Breakingviews) - RBS is still finding its state embrace uncomfortable. In the decade since the UK lender wound up with a majority government stake it has been dragged over the coals for its bonuses, its lending policies and allegedly driving healthy businesses to the wall. Friday’s 100 million pound provision to cover the risk of a messy UK exit from the EU is the latest sign of its awkward state/private sector hybrid.
RBS, still over 60 percent government-owned, fears lost jobs, soaring inflation and hobbled consumer spending if Britain crashes out of the European Union without a deal. Hence the decision to top up an existing near 4 billion pounds of provisions on its 320 billion pound loan book. The combination of this, plus a Brexit-related need to hold a larger stock of liquid assets, meant the lender’s 448 million pounds of third-quarter net profit missed expectations and its net interest margin fell 8 basis points to 1.93 percent. The bank’s share price fell nearly 5 percent.
RBS is hardly alone in making preparations for a no-deal Brexit. In the two years following Britain’s vote to leave, Barclays has cut its leveraged loan book by 25 percent and eased off its credit card business. More recently, HSBC included a 190 million pound provision to address economic uncertainty. Both are probably Brexit-related.
Still, RBS’s warning is more explicit. Given its close ties to the UK Treasury, which signs off its CEO appointments, any Brexit warning is likely to be interpreted as a political tactic. Brexit-backers will point to the fact that only 0.16 percent of RBS loans are in default, a number which was lower than expected, as a sign that the bank is being used as a scare-mongering conduit.
Remainers will think the opposite. Under IFRS accounting rules, any changes to internal economic forecasts have to be reflected in the lender’s provisions. If the more blood-curdling predictions about what a no-deal outcome would entail come true, Europhiles will attack RBS for being too circumspect. That’s pretty annoying – but after a decade the bank is used to being caught in the middle.
Reuters Breakingviews is the world's leading source of agenda-setting financial insight. As the Reuters brand for financial commentary, we dissect the big business and economic stories as they break around the world every day. A global team of about 30 correspondents in New York, London, Hong Kong and other major cities provides expert analysis in real time.
Sign up for a free trial of our full service at https://www.breakingviews.com/trial and follow us on Twitter @Breakingviews and at www.breakingviews.com. All opinions expressed are those of the authors.