The Royal Bank of Scotland Group plc
) share price tumbled 1.84% to $10.65, following the reported
loss in third-quarter 2013. Third-quarter 2013 loss from
continuing operations came in at £715 million ($1,108 million),
as compared with the loss of £1,371 million ($2,165 million) in
the prior-year quarter.
The results reflect lower net interest income and non-interest
income, partially offset by a fall in loan impairment losses.
However, reduced operating expenses were a tailwind.
Core operating income came in at £1,283 million ($1988 million),
down 14% year over year. The decline was attributed to the
ongoing strategic contraction of the Markets business. However,
non-core operating loss came in at £845 million ($1,309 million)
compared with the loss of £586 million ($926 million) in the
Furthermore, division-wise, on a year-over-year basis, Retail
& Commercial, Central items and Markets division reported a
10.7%, 68.5% and 27.7% fall, respectively in operating profit.
Performance in Detail
Net interest income dipped 1.0% on a year-over-year basis to
£2,783 million ($4,312 million). Non-interest income came in at
£2,111 million ($3,271 million), down 23.2% year over year. The
decline was driven by targeted reduction in markets balance sheet
and risk-weighted assets.
Operating expenses for the quarter totaled £3,286 million ($5,091
million), down 5.4% over the prior-year quarter. However, core
cost to income ratio deteriorated to 63% from 59% in the
prior-year quarter, mainly due to weaker income in markets.
Loan impairment losses were £1,120 million ($1,735 million), down
5.3% year over year. This was primarily led by a 22.2% decrease
in loan impairments in the core portfolio.
As of Sep 30, 2013, RBS exhibited a strong capital
position. Funded assets stood at £805.8 billion ($1,300
billion), down 7.4% over the nine months period. Total assets
were £1,129 billion ($1,822 billion), down 13.9% from £1,312
billion ($2,119 billion) as of Dec 31, 2012.
Loans and advances to customers were £408 billion ($658 billion),
down 5.6% over the nine months period. Loan to deposit ratio was
94% as compared with 100% in the prior-year quarter.
As of Sep 30, 2013, core Tier 1 ratio was 11.6%, compared with
10.3% as of Dec 31, 2012. On a fully applied Basel III basis, the
core Tier 1 ratio was 11.7%. Risk-weighted assets came in at £410
billion ($662 billion), down 10.9% from £460 billion ($743
billion) as of Dec 31, 2012. Tier 1 leverage ratio stood at 14.0x
compared with 15.0x as of Dec 31, 2012.
Though economic recovery in the UK is visible, management
anticipates the subdued performance from core businesses to
continue in the short term. Further, it expects Markets
performance to be seasonally good in the fourth quarter.
Margins are expected to be stable or slightly up and underlying
cost base to stand at £13 billion for 2013 (excluding penalties
On the application of new strategy for high risk assets,
management anticipates a significant increase in impairments in
fourth-quarter 2013, which might result in RBS reporting
substantial loss for the full-year 2013.
Performance of Other Foreign Banks
Deutsche Bank AG
) reported net income of €51 million ($67.5 million) in the third
quarter of 2013, down from €754 million ($998.6 million) in the
prior-year quarter. Results suffered due to litigation related
) reported third-quarter 2013 net income attributable to
shareholders of CHF 577 million ($619.1 million), which
substantially lagged the prior-quarter's income of CHF 690
million ($731.8 million). The quarterly results were impacted by
net charges for provisions for litigation, regulatory and similar
matters worth CHF 586 million ($628.7 million), partially offset
by a net tax benefit of CHF 222 million ($238.2 million).
) reported adjusted net income of £3,418 million ($5,285 million)
for the first nine months of 2013. This reflected a 21% decline
from the prior-year period level. Results were adversely affected
by a fall in net operating income, partially benefiting from a
decline in operating expenses.
We expect RBS' diversified business model and sound financial
position to contribute to its overall growth going forward.
Though ongoing restructuring will help counter some of the
challenges, increased competition, volatility in the global
economy and the new regulations will remain plausible concerns.
Shares of RBS currently carry a Zacks Rank #3 (Hold).
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