RBS held a successful shareholder event at their London HQ on 10 September 2019, attended by about 90 shareholders. There is clearly demand, from many shareholders, to attend such events.
The format was a panel of Sir Howard Davies, Chairman, Francesca Barnes, NED of the ring-fenced bank, Yasmin Jetha, NED of the ring-fenced bank, Bruce Fletcher, Group Chief Risk Officer and Matt Waymark, Director of Finance and Investor Relations. Sir Howard made a short introduction about strategic issues, explained the latest PPI provisioning and Matt Waymark went over the financials, noting the £2bn profits after tax in H1 2019, the strong capital ratio, 16%, and that the share price was down from 217p at the start of the year 1/1/19, but there had been 25p of dividends, so the real decline was only 3 to 6%[1][2]. He explained the share price was down because the sector was down due to concerns about the economy (Brexit effects) but that RBS’ share price was doing better than others[3].
The meeting then moved to questions. The first three questions were “pre-submitted” questions, which covered some of the most contentious issues and enabled the meeting to run much more smoothly and focus on shareholder issues, unlike the previous RBS meeting I attended in 2017 which was hijacked by other stakeholder groups.
Pre-submitted Questions
Below is my report on the questions asked, based on the notes I took at the meeting. I may not be 100% precise, but I hope it gives a flavour of the meeting. The three pre-submitted questions were:
Q1. Why don’t you combine the different brands?
A1. It is not easy. The benefits of doing so are not clear.
Q2. Why has RBS not settled my RBS litigation claim about the RBS rights issue? 82p was agreed. Why did I not get it? And can I have interest on the amount I have not received?
A2. RBS settled with groups representing shareholders, i.e. law firms representing shareholders. Most of the amounts claimed have now been paid out. We do not have any reluctance to pay out. We have made provision for the amounts and are happy to do so. We do need to have clear evidence that the claim is from a legitimate shareholder. I suspect that may be your problem and we will work with you to look into your particular case.
When the bank was sued it took the view it had a good defence. But later the bank took the view that for commercial reasons, it would be better to settle, in the interests of all shareholders. We realised that those who did not join the claims did not get their money back. But those who did join a claim had to make a contribution. There was a choice involved.
Q3. Evidence shows paying bonuses is not successful. Is this now time for moderation?
A3. Yes. We have reduced the bonus pool from £1.4bn in 2010 to £335m last year. True the bank is smaller, but the main reason is we made conscious decisions to do so, e.g.
- We decided bonuses for senior managers is not a good idea. They get long term share awards, but not bonuses and their share awards can be clawed back if planned profits are not achieved.
- We stopped paying bonuses to front line staff in branches as it is not a good idea and it had contributed to mis selling, e.g. PPI.
Overall the bank is a backmarker on pay. Typically, we pay in the middle or the bottom half.
We have done a lot to correct the culture that contributed to the financial crisis.
I accept the general point of the question, but think we have done quite a lot.
Questions from the audience
Q4. Why do you return capital via share buy backs? I prefer dividends of buying back of the Government’s shares.
A4. There is a strong logic in buying back shares from the government. Shareholders large and small think this is a good idea. But it needs a willing seller. The last sale by Government was at £2.70. Also, we need to establish that a fair price has been obtained, so it is best to also buy shares from others.
Q5. Could you use branch space as workshops for the millions of students who want to workshop their ideas. My grandfather sat down with RBS people and they helped him build his business.
A5. We are. We have 1,000 new businesses we are helping at anyone time. Perhaps we are not telling people enough about this. Students are an important part of our customer base. We try to engage with them and want to engage with them for a long time as long-term customers.
Q6. Is it safe to assume you have finished the branch closure programme?
A6. We have finished for the moment. We cannot give an indefinite guarantee.
Q7. What about MONZA, which many young people use?
A7. BO is our digital bank. I have huge respect for disrupters and their technology. We need to make sure our offering is as good as theirs and get on with it.
Q8. I bought shares at £18 and now they are worth about 20p. So, I will have to wait 100 years to get my money back. Why isn’t the AGM in London?
A8. [no answer or comment on the first point] The AGM is in Edinburgh because we are a Scottish company. It is web-cast and we do shareholder events to try to have outreach.
Q9. How many of the audience bank online and how many bank via branches? Show of hands please.
A9. About half and half. [The third question, of who does both, was not asked!]
Q10. How safe is the dividend in a global recession?
A10. The BoE tests are very severe. In tests we are very good and have good liquidity.
Q11. I am an RBS customer and can do a lot of banking in my local Nat West branch. Can you communicate this better?
A11. Thank you for your question. We will look at this.
Q12. Your financials and your chosen qualitative measures look good. After 11 years you are now #1 or #2 ranked banked for SMEs. Where is the biggest risk? I suggest it is management – the directors do not have enough banking experience. I calculate £2bn of legal fees have been spent by your Legal Counsel defending RBS from various legacy issues. Has this not pervaded the culture. You made £2bn in H1 2019 and may be on course to make £5bn this year so the company should be valued at £70 billion not £25 billion. World Pay (which RBS sold) is now worth more than RBS. Are you a takeover candidate from a US bank? Why have you obstructed and argued against a shareholder committee when it would have provided much wisdom?
A12. By Bruce Fletcher Chief Risk Officer. We do not have a culture problem here. The culture is good. I measure it. As to strategy, the management did what the Gov asked them to do and they have done it. The financials are strong. We are not leveraged. The people I see are good people.
Q13. Independent statistics on customers satisfaction give lower results than your internal statistics. Have you asked GRG and ex GRG customers about their satisfaction levels with RBS? Are you kidding yourselves?
A13. Customer satisfaction is important and when it comes to share grants it is one of the things that input to the award decision for each executive.
Re restructuring, we acknowledge there are problems. The restructuring unit reports to me now (i.e. Bruce Fletcher, Chief Risk Officer).
Q14. Brexit. What is the impact of no-deal?
A14. We have prepared for this. We have educated our teams on a sector basis, so they can talk to customers. We have set aside (I think they said) £3 billion for loans to customers who will need extra cash to solve cash flow problems arising from Brexit.
Q15. What are your geographic plans?
A15. We are heavily concentrated on the UK and plan to continue to do so. Hence we cannot isolate ourselves from the UK economy.
Q16. Would you acquire a building society or bank if it got into difficulties?
A16. The BoE would probably look to Nationwide if a building society got into difficulties. If it was a bank we would look at it. We have seen the problems of acquisitions done without doing due diligence. [laughter from audience! Clearly they have learnt the lesson.]
Q17. What is the profit impact of interest rates?
A17. 25 bp decrease = £150m year 1 and £250 to 300 million in year 3. So, 1% might lead to a £1bn impact.
Q18. I have not learnt anything new tonight. I have heard things like this before. I talk to people in branches and ask how they feel. I have not heard a single person who is totally satisfied. So, I am surprised to hear your view. Please note I have no axe to grind. It looks like the same salad but with different dressing. Is there an honest assessment of the risks? Is the “turnaround” of RBS a joke?
A18. No, we have made significant changes. The turnaround of the balance sheet is a real achievement.
Q19. (From me) Congratulations on this evening which has been very good with many varied and interesting questions from the shareholders. I and others have campaigned for a shareholder committee so as to improve the engagement of the Board with shareholders. This evening has been a good example of improved engagement. Will RBS commit to having 4 or 5 of meetings like this so that shareholders around the country can hear what the company is doing and so directors can hear the concerns of individual shareholders? Could one of these meetings be in London shortly before the AGM in Edinburgh?
A19. We will consider having more meetings. We have a virtual meeting scheduled for 25 November (see https://investors.rbs.com/shareholder-centre/shareholder-events.aspx for info).
The meeting was prefaced by a light buffet and soft drinks. This was very adequate and avoided fuelling difficult shareholders with alcohol, thus not encouraging unnecessarily aggressive questioning as had happened in the July 2017 meeting.
Summary
This is a bank making £4 or £5 billion a year trading on a p/e of 5 or 6. Why is the share price so low? RBS seems to have sorted out its legacy issues. They say they have changed the culture (but I still worry and smiled at one shareholder’s comment that it was the same old salad – they had merely changed the salad dressing!).
RBS has a market cap of just £26 billion but ought to be double or treble this based on simple cash flow modelling. Why is it not a takeover target? Perhaps the Government’s ownership of 62% of RBS makes it take over proof and is depressing the share price? The Labour party if elected could well nationalise the part of RBS it does not own and that (hopefully remote possibility) must also be depressing the share price.
At what price is UKGI (i.e. Government) a willing seller?
RBS are now engaging with individual shareholders and looking for ways to do this better. All of this is very positive.
This was a much better meeting than the one two years ago in London, see https://www.sharesoc.org/blog/rbs-shareholder-event-hijacked-stakeholder-groups/for my previous report. Well done RBS.
Now we have to decide whether to submit another shareholder resolution for the 2020 RBS AGM. Your comments and views are welcome.
By Cliff Weight, ShareSoc Director and RBS Shareholder Committee Campaign Co-ordinator
Disclosures: Please note nothing in the above should be construed as investment advice. I am a shareholder in RBS.
[1] his slide had been prepared earlier and I think said the share price was 182p. It was up to 198p on 10/9/19. It has since increased to 213.5p on 20/10/19.
[2] The RBS share price is up from its nadir of £1.70 in Oct 2016, and 177p on 15 Aug 2019, but 95% less than its 2007 peak of £69 (this is the figure adjusted for subsequent recapitalisations). The RBS share price had a more recent peak of 300p in Jan 2018.
[3] I do not understand why a supposedly safe, simple bank with good capital ratios has such a volatile share price. It does not stack up to me. If you can explain this then please let me know!
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