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RBS share price slides after admitting it will miss profit target

Royal Bank of Scotland saw its share price fall on Friday after the lender blamed Brexit for derailing its profit and cost targets for next year, despite recording a strong set of half-year results.

Royal Bank of Scotland Source: Bloomberg

Royal Bank of Scotland Group (RBS) told investors on Friday that it will likely miss next year’s profit and cost targets, with the lender blaming adverse economic conditions brought about by Brexit for its poor outlook.

‘Given current market conditions, continued economic and political uncertainty and the contraction of the yield curve, it is very unlikely that we will achieve our target return on tangible equity of more than 12% and cost-income ratio of less than 50% in 2020,’ the company said.

The news led to the lender’s share price tumbling more than 6% to 203p as of 14::10 GMT on Friday, despite the bank unveiling a strong set of half-year results on the same day.

RBS results: key figures

In its half-year results, RBS surprised investors with an interim ordinary dividend of 2p a share, along with a special dividend of 12p, representing a £1.7 billion pay-out for shareholders.

The UK government, which still holds a 62% stake in RBS will receive a £1 billion pay out from the special dividend.

In its second quarter (Q2), RBS recorded £1.68 billion in pre-tax profit, helping the bank deliver a 15.8% return on tangible equity.

Its results highlight the impact that outgoing CEO Ross McEwan has had on RBS, with his stewardship helping the bank to build a strong foundation.

However, the lender’s 2020 outlook is a major concern for whoever takes his place, as they will likely have to navigate the fallout of a no-deal Brexit.

‘This is overall another set of disappointing of results from RBS, which is now facing an extremely demanding operating environment,’ analyst Edward Firth at broker KBW told Reuters.

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RBS braces for economic and political uncertainty

The bank faced a difficult road to recovery after its £45 billion bailout in the wake of the financial crisis a decade ago.

In the years that followed, RBS has made significant progress with its turnaround strategy, however, the bank must now battle against economic and political uncertainty as it attempts to return the lender to private hands.

‘The subdued outlook for interest rates is affecting all banks, global economic growth prospects are less favourable, trade tensions between China and the U.S. continue to be strained ... and that’s also affecting market confidence,’ RBS Chairman Howard Davies said.

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