RBS ‘will take 18 months to improve capital ratios’

ROYAL Bank of Scotland’s chief executive Stephen Hester said yesterday it would take another 18 months to improve the bank’s capital position enough to keep regulators happy.

“Our capital ratios are transformed but we have another 18 months or so to get them in the final shape that we and our regulators want,” Mr Hester told shareholders at the bank’s annual meeting in Edinburgh, Scotland.

Britain’s financial regulator said in March that UK banks must raise £25bn of extra capital by the end of the year to absorb any future losses on loans.

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Although the regulator has not yet given specific guidance to individual banks, analysts expect the biggest shortfall to be at RBS.

RBS’s Core Tier 1 ratio, a measure of its financial strength, stood at 8.2 per cent at the end of the first quarter, assuming the full implementation of tougher global rules, which are being phased in, lower than most major European banks.

Mr Hester has overseen a major restructuring of the bank, which has shed around £900bn of assets from its bloated balance sheet since Britain rescued it with a £45.5bn taxpayer-funded bailout at the peak of the financial crisis in 2008.

This left the government with an 81 per cent stake.

Chairman Philip Hampton said that the bank should “substantially complete” its restructuring in 2014, enabling it to return to the private sector “as soon as we can.”

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“We have the ambition of putting the Government in a position to sell the shares towards the end of 2014.

“Then it is the Government’s decision,” Mr Hampton told reporters.

Mr Hampton said there would be more job cuts at the bank, which had previously said it would cut 3,800 jobs from its markets and international banking division by the end of 2013.

Mr Hampton also said the bank would invest an additional £450m to improve its computer systems, on top of the £2bn it spends each year.

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The bank suffered a major embarrassment last year when systems failures left millions of customers unable to make or receive payments.

RBS awarded £607m of staff bonuses during 2012 – a year when it lost £5.2bn. A £390m settlement for Libor rate-fixing, another £1.1bn of mis-selling provisions and a £175m IT fiasco drove losses deeper from £1.2bn in 2011.

Earlier this month, RBS swung out of the red with pre-tax profits of £826m for the first three months – its best performance since the third quarter of 2011.

While its £607m bonus pool in 2012 was down 23 per cent on £789m a year earlier, it included £215m for investment bankers.

However, the bank said it was recouping £302m for its Libor settlement by cutting the 2012 bonus pot, clawing back from previous years and reducing current year awards.