RBS share price: Group prepares for Brexit uncertainty

on May 5, 2016
Updated: Oct 21, 2019

Royal Bank of Scotland Group (LON:RBS) is preparing for a potential phase of economic instability following a referendum on the UK’s membership of the EU, the lender’s chair has told shareholders. The comments came as the bailed-out bank flagged further cost cuts as it looks to return to profitability.

RBS’ share price has been steady this morning, having added 0.55 percent to 220.40p as of 08:08 BST. The shares are slightly outperforming the broader London market, with the FTSE 100 index currently standing 0.26 percent higher at 6,127.87 points.
RBS’ chair Howard Davies told shareholders at the bank’s annual general meeting yesterday that the upcoming EU referendum was generating additional uncertainty in a sector which is already pressured by low interest rates and economic volatility.

“If a vote to leave the EU leads to a slowdown in growth, as the Treasury, Bank of England and most other economic forecasters suggest, that would be an unwelcome headwind,” Davies pointed out. “So, as a prudent business we are preparing as best we can for various potential scenarios.”
The comments came as analysts at Morningstar removed the blue-chip group from their Best Ideas list of undervalued high-quality stocks this week, arguing that the negative impact of the referendum was likely to linger on through the year even in the case of a ‘no’ vote.
RBS, which is currently undergoing a major restructuring, also flagged further cost cuts as it looks to return to profitability following its £45.5-billion taxpayer-funded bailout during the financial crisis. The group’s chief executive Ross McEwan told shareholders yesterday that the bank would take at least another £800 million out of its cost base.
“A cost to income ratio of 72 percent, as it was for 2015, is simply too high,” McEwan said, adding that his intention was “to get the cost base properly aligned to the bank we are becoming, not the global bank we once were”.
RBS is still facing a number of challenges, including an investigation by US regulators into potential liabilities surrounding the sale of mortgage-backed securities in the run-up to the financial crisis.. The company is also struggling with the separation of its Williams & Glyn business, having warned last week that it might miss yet another deadline to carve out the unit, and that the overall financial impact of the process was likely to be “significantly greater” than previously thought.
As of 08:17 BST, Thursday, 05 May, Royal Bank of Scotland Group share price is 219.20p.