Bringing in good news for shareholders, Britain-based Royal Bank of ScotlandRBS came up with the first dividend announcement, along with its second-quarter 2018 earnings release, since its bailout by the Government in 2008. The move follows the bank's aims to get its state stake reduced.
Notably, the British government currently has a 62.4% stake in RBS which was taken up by paying 45.5 billion pound ($59.1 billion) as state bailout during the financial crisis.
Investors' optimism was visible in the share price movement as the company's shares on the NYSE appreciated nearly 3%, following the release.
RBS has announced an interim dividend of 2 pence per share. However, the dividend will be paid on final settlement worth $4.9 billion of the litigation case related to the sale of mortgage-backed securities with the U.S. Department of Justice (DOJ). RBS set aside additional provision worth £1,040 million in the June-end quarter for meeting litigation settlements.
Though the agreement initiated in May, the settlement's awaited finalization has restricted RBS' return to dividends.
Per, RBS' CEO Ross McEwan, the bank plans to return more excess capital to shareholders from 2019, through announcing special dividends or share buy backs.
"Our intention has always been to get capital back into the hands of shareholders," he said on a conference call with reporters, adding that the bank would want to look at the potential impact of Brexit before making any major payouts.
Recently, RBS reported second-quarter 2018 net income attributable to its shareholders of £96 million ($130.6 million), significantly down from £680 million ($912.9 million) witnessed in the prior-year quarter. Operating income totaled £613 million ($834 million), plunging 50.5% from the year-ago quarter.
Lower revenues, aided by fall in net interest, as well as non-interest income, mainly impacted results. Further, higher litigation charges were on the downside.
In addition, division wise, the NatWest Markets segment reported operating loss in the second quarter and the prior-year quarter. However, the RBS International, Commercial & Private Banking (CPB) and Personal & Business Banking (PBB) segments recorded profits in the reported as well as the prior-year quarter.
We expect RBS' diversified business model and sound financial position to be conducive to overall growth in the near term. Moreover, dividend announcement will boost investors' confidence. Though heightened competition, volatility in the global economy and litigation costs remain plausible concerns, the bank's ongoing restructuring measures will likely help battle some of these challenges.
RBS currently carries a Zacks Rank #4 (Sell).
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Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free reportRoyal Bank Scotland PLC (The) (RBS): Free Stock Analysis ReportBank Of Montreal (BMO): Free Stock Analysis ReportBanco De Chile (BCH): Free Stock Analysis ReportBank of N.T. Butterfield & Son Limited (The) (NTB): Free Stock Analysis ReportTo read this article on Zacks.com click here.Zacks Investment Research