Q&A: Why is RBS performing so badly?

The RBS branch in Dronfield. Google Street View
The RBS branch in Dronfield. Google Street View
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Royal Bank of Scotland’s ninth year of mammoth losses has confirmed an ever-widening gap with rivals in a sour end to the sector’s annual results season.

While RBS has slipped even deeper into the red, Lloyds posted its best annual profit in a decade as it finally moves on from the financial crisis.

Here the Press Association answers some key questions on a mixed set of results from Britain’s biggest banks.

:: Why is Lloyds performing so well while RBS remain firmly in the doldrums?

Prior to the financial crisis, RBS expanded globally, holding US operations and buying up Dutch bank ABN Amro in 2007, resulting in a precarious capital position by the time the crunch came.

Lloyds, meanwhile, was domestically focussed and its problems stemmed from bad commercial property loans and its takeover of HBOS.

In short, RBS started with bigger issues than Lloyds at the time of their respective bailouts.

Fast forward to today and Lloyds this week more than doubled annual profits as it puts nearly 10 years of woes behind it.

The lender is now set to be free of taxpayer support by May after the Government sold down its stake to below 4% after the bumper results.

Lloyds chief executive Antonio Horta-Osorio has also been praised for his part in the bank’s recovery, having successfully cleared bad debts and slashed costs, although this has come at the expense of jobs and branches.

Lloyds is also nearing the end of the costly payment protection insurance (PPI) scandal, which has weighed heavily on profits until now.

Life is not so rosy for RBS. It remains 72% owned by taxpayer and there is little sign of the Government recouping its £45 billion bailout cash, with the group posting another £7 billion of losses for 2016.

:: Why is RBS still so deep in the red?

RBS continues to be hamstrung by fines, restructuring costs and EU rules on state aid.

The group’s results were hit after it set aside another 3.8 billion US dollars (£3.1 billion) ahead of an expected settlement from US authorities and the group has been mired in controversy over its treatment of struggling businesses.

RBS also failed Bank of England stress tests late in 2016.

But there is some hope that it may be able to clear one major hurdle that has been looming large, as the Treasury holds talks to spare RBS from selling its Williams & Glyn branches.

The process has been expensive and beset by problems, so any alternative would be welcomed by the bank.

:: How did the other major banks fare last year?

Barclays also seems to be well on the path to recovery after a swingeing overhaul comes to a close, with group profits nearly trebling last year.

Like Lloyds, it is turning a corner after the PPI saga and past misdeeds.

But HSBC is still paying for its mistakes, as it revealed it is facing a UK investigation over financial crime controls and remains under pressure from US authorities after its £1.2 billion US money laundering fine nearly five years ago.

:: Is Brexit impacting the banking sector?

Yes, according to HSBC’s results, which revealed profits slumping 62% amid ‘’volatile’’ trading caused by the Brexit vote and President Donald Trump’s election.

Although results were largely weighed down by a string of one-off charges, such as the sale of its Brazilian operations, as well as hefty write-downs from a restructuring.

It is also planning to shift 1,000 jobs to Paris after Brexit.

But it was joined by rivals in playing down fears over the impact on the City, with UK bank bosses seemingly convinced London will remain a dominant financial centre.

:: Is the sector seeing the back of huge fines?

The hefty fines for the Libor rate-rigging scandal are now largely in the past and PPI mis-selling costs are coming to a close, but the sector is by no means free from the threat of penalties.

RBS is waiting for its US settlement, while Barclays is still fighting the DoJ over allegations of its role in mortgage-backed security mis-selling.

Meanwhile, Lloyds revealed it took £1 billion in 2016 for conduct charges other than PPI, such packaged account mis-selling, while HSBC could be hit as part of its UK money-laundering probe.

:: What’s the prospect for jobs and branches?

The massive staff cuts seen among the big UK players are far from over, as RBS confirmed with its announcement of further cost cutting.

HSBC and Lloyds only recently took the axe once more to their workforces and have confirmed that costs will continue to be slashed.

Barclays is tentatively lifting its hiring freeze, but the rise of internet banking means branch networks and bank workforces will continue shrinking across the sector.