RBS hints at share buyback

RBS hints at share buyback

Sir Fred Goodwin, the chief executive of Royal Bank of Scotland, yesterday raised the prospect of a handout for shareholders next year as he promised to put a halt to acquisitions by the Edinburgh-based bank. The RBS share price has been lagging behind Its peers for the past three years, putting Sir Fred under pressure to reassure investors that the spending spree on expansion drives in the US and China was coming to an end.

As RBS released its trading update before full-year figures next year, Sir Fred indicated that the bank's board could be in a position to consider a buyback of shares next year when the bank is forecast to be generating excess capital of as much as £3.5bn. Any decision to conduct a share buyback would be a dramatic reversal in the bank's strategy. In recent history the bank has never bought back its shares.

He said the bank did not have an "intellectual or philosophical problem with a buyback". A buyback could only be considered if the bank's tier one capital ratio - a cushion of capital required by financial regulators to maintain its financial strength - is more than 7%. Between 7% and 8% would make a buyback possible - and even more likely if it is above 8%.

The bank expects its tier one capital ratio to "exceed" 7% at the end of 2005. In the past excess capital has been used to fund acquisitions or raise the dividend. Sir Fred said further acquisitions were unlikely. The bank was urged by analysts at Dresdner Kleinwort.....continued below

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Wasserstein to return cash. "We say, Sir Fred, please return £1bn to investors," said James Eden, at DKW.

RBS's shares fell 19p to £16.92 after the bank said its 2005 profits would be "in line" with expectations for £8.1bn of profits, up 17% on the year. Banking group HBOS this week said it would exceed expectations.

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