Investors in Royal Bank of Scotland (RBS) will be looking for commentary about the post-Brexit vote outlook, and bad loan write-downs when the Edinburgh lender reports second-quarter figures tomorrow.
The bank, in which the government holds almost 72% of the voting rights after a credit-crisis bailout, is likely to post a loss attributable to shareholders of £410 million ($538.62 million) amid continued restructuring charges. That's down from the loss of £968 million in the first quarter, when Royal Bank of Scotland made a £1.19 billion payment to the government to remove a constraint on its ability to pay dividends to other shareholders in the future. But it compares with a profit attributable to shareholders of £293 million in the second quarter of last year.
Operating profit before tax is likely to come in at negative £81 million, compared with a pretax profit of £240 million a year earlier, according to a consensus compiled by FactSet. Analysts are looking for a net interest margin of 2.34%, up from 2.15% in the first quarter.
In April, when reporting first-quarter results, RBS predicted stable revenue from its personal and business banking and its commercial and private banking units in 2016 and a "modest erosion" in business at its corporate and institutional banking unit.
However, rivals' bulletins have suggested that big-ticket banking transactions ebbed in the course of the second quarter, and economic data from the U.K. suggest economic growth slowed dramatically after April, with consumer and business activity affected.
In April RBS predicted full-year restructuring costs of £1 billion and cost savings for 2016 of £800 million.
Investors will be watching closely for news of bad-loan writedowns, including in commercial real estate, which JPMorgan said recently was a potential trouble spot for the bank. In the first quarter write-downs were dominated by a £226 million impairment related to RBS' shipping portfolio. JPMorgan said RBS has about £25.2 billion of loans extended to the commercial real estate sector, which has looked vulnerable since the Brexit vote.
Capital at RBS evaporated at one of the fastest paces in Europe under the hypothetical scenarios run by European Banking Authority against 51 banks in its stress tests last week.
At the end of the first quarter the bank's common equity Tier One ratio was a hefty 14.6%. Under the EBA stress tests this fell to a low point of 7.8%, still well ahead of the Basel III minimum of 4.5%.
The bank's adjusted return on equity in the first quarter was 10.9%.
Investors will also be looking for news on the long drawn-out spinout of about 300 banking branches it has named Williams & Glyn. The Edinburgh institution in April warned it may not meet a European Commission deadline of the end of 2017 to sell the branches, which it must shed as a condition of Brussels approval for its 2009 government bailout. Two preliminary deals to sell the assets have since collapsed, starting with the August 2010 retreat by Banco Santander from a deal to pay £1.65 billion for the branches. Santander is understood to have submitted a new bid for the assets in RBS' latest auction progress as the Spanish bank takes advantage of a decline in the pound's value against the euro since the Brexit vote.
Commentary on the rate outlook for RBS' customers will be closely watched after the Bank of England on Thursday cut interest rates by a quarter point to a record low 0.25%. A division of Royal Bank of Scotland recently wrote to business customers warning it may charge them for accounts in credit.