- RBS could do better! It would be wrong to lambast RBS in the eye of the COVID-19 storm, but we note the following issues:
- 2020 AGM solution requires voting before discussion
- Directors’ shareholdings are too small – no alignment with shareholders
- No information on potential loan impairments from COVID-19 pandemic
- Market cap of £12bn is too small versus £723bn total assets
- The RBS Board has in this time of crisis, reverted to type – communication flows and quality of information to shareholders are inadequate
- ShareSoc recommends that investors record concerns through AGM votes
On 15 Dec 2019, we reported that “ShareSoc and UKSA have now paused our campaign (to have a shareholder committee), because RBS are now engaging better with shareholders and have announced a programme of 4 events a year specifically focused on engagement with individual shareholders. See https://investors.rbs.com/shareholder-centre/shareholder-events.aspx, where you can also access a recording of RBS’ successful virtual event on 25 Nov 2019.”
Disappointingly, RBS have to date announced only one retail shareholder engagement meeting for 2020, a virtual meeting on the day of the AGM, but following the AGM, with a promise that further information about future shareholder events will be made in the coming months.
There are many reasons for shareholder concern:
- Covid-19 means shareholders cannot physically attend the AGM, so votes have to be lodged by proxy 3 days before the AGM. Information received after that date, including the board’s replies to shareholder questions put to the AGM, will therefore not be reflected in the votes.
- Q1 Results will be announced on 1st May, 3 days after the AGM. This is hugely unsatisfactory sequencing. It would be far more helpful for the company to provide a trading update before the AGM. A week beforehand would give time for shareholders to digest the information and make their voting decisions.
- The AGM notice dated 31st March arrived in my post on 9th April, along with a copy of the 300-page Annual Report, which was signed off on 13 February. The AGM notice gave no information about the share price halving and what RBS is doing in reaction to the current crisis. The AGM notice contained a £1.333bn dividend proposal and a new remuneration policy, both clearly no longer appropriate at the time of issue.
- On 1st April, RBS announced it was cancelling the dividends thereby adding £1.333bn of free cash and 74bp to the CET1 ratio, previously stated at 16.2% in the accounts at 31/12/2019.
- On 8th April, RBS announced the Chair and CEO had given up 25% of their fixed pay for the rest of 2020 and the CEO would waive any variable pay for 2020. But no information was provided on whether others had had their pay cut, whether any staff had been laid off or what other cost saving measures had been implemented.
- The annual report makes no mention of Coronavirus, despite it being in the news and relevant at the time of production. Was there no contingency planning going on as at 13th February? The lack of mention suggests the Board were asleep at the wheel again.
- The ratio of bad loans as % of loans (in total and by cohort, e.g. by year, by type) is a crucial performance measure, in my opinion, but RBS do not list it as a KPI. It is not mentioned in the annual report until pages 52 and 54, which says the net impairment loss of £696 million in 2019 was 21bp and increased by £298 over 2018. JP Morgan have just announced $8.3 bn bad loans provision (15 April). Why is it taking RBS so long to come clean?
- The Virtual Meeting after the AGM will not form part of the formal business of the AGM.
- The implication is that RBS does not value the AGM process and wishes to downplay the importance of AGMs. This is a warning signal to shareholders. For poorly performing boards, being publicly held to account at an AGM is an irritation and to be avoided where possible. We must not let this current crisis be used as an excuse to downplay the importance of AGMs.
- The FRC has published its views on the importance of trading updates. The issue of going concern is of most importance in these stressful times and investors will want to review the risks and views of directors about these issues. RBS have structured their AGM so that shareholders will not be able to get this information. As a bank owned 62% by the Government, this is a bad example to be setting.
- The annual report page 44 lists the “Top and Emerging Risks”. The report was dated 13 February, but makes no mention of pandemic risks, Covid-19, coronavirus, China Lockdown and economic shutdown, etc.
- The shockingly low 1,205,945 shares held by new CEO Alison Rose (current value c £1.25million @15 April 2020) is about 6 months’ worth of her fixed remuneration). Has she sold some of the RBS shares she has amassed in her 30 years with RBS? If she has then, it does not send a good message about her confidence in the bank and her desire to be aligned with long term shareholders. Vote against her reappointment, resolution 7 and the Chair of the Remuneration Committee, resolution 12.
- Howard Davies only holds 100,000 of RBS shares and was paid £750k in 2019. I think this sends a message about how important the thinks the share price is. Vote against his reappointment, resolution 6.
- This is a board which has lost its way. It is using the wrong “tableau de bord”. It is measuring the wrong measures. Whilst it is comforting to hear that “the cost of risk remained below the view of our normalised blended long term loss rate of 30 to 40 basis points” in 2019, see page 54 of the annual report, I am horrified that there is no information on the loss rate for 2020, nor any scenarios, nor any mention of Covid 19 risk in the report or its potential impact in the circular, or other announcements. In the absence of information, I fear the worst.
- Page 137 is worth reviewing. The risk scenarios do not get anywhere near to covering what is now likely to occur in 2020.
- Page 202 is the statutory accounts P&L statement, which includes a separate line for the impairment losses, presumably because those who set the IFRS accounting standards think it is important, even if the RBS Board do not think it should be a KPI?
- When I get the RBS annual report, I always rush to read the “Contingent liabilities and commitments”, note 26 on page 255 of the 2019 annual report. When I first read the equivalent note in the 2016 report there were huge numbers in provisions for RMBS and LIBOR and many other claims. This year the news is encouraging. There was a rush of claims near the end of the PPI deadline – I suspect the ambulance chasers found many people and we will have to wait to see if the validity of their claims is as high as the ones that have been processed so far. The provision remaining for the SME and GRG claims is only £106 million. I watch this number closely, as I worried that much more provision was needed. It seems I was worrying unnecessarily.
So, ShareSoc’s AGM Voting recommendations are to register a protest vote and vote against:
Resolution 2, the new Remuneration Policy
Resolution 6, re-election of Howard Davies
Resolution 7, re-echoing of Alison Rose
Resolution 12, re-election of Robert Gillespie
Resolution 25, which if passed would allow the holding of General meetings at 14 days notice.
We suggest you vote for the other resolutions.
RBS is 62% owned by the Government, so protest votes will not affect the results. However, it will send a signal.
Cliff Weight, RBS Shareholder, ShareSoc Director and ShareSoc RBS Shareholder Committee Campaign Coordinator
Disclosure: I own a few shares in RBS. I used to own more, but was always underweight banks. I sold most of my RBS holding towards the end of March. Please do not take anything in this article as financial advice. I am not qualified to give financial advice.