The tax-payer looks no nearer to getting its cash back from Royal Bank of Scotland (RBS) almost nine years after the government stepped into to save it from collapse.
The bank, which is changing from an international player into a UK-facing lender, is set for a ninth successive annual loss after diving £2 billion into the red in the six months to 30 June.
RBS’ shares cheapened 4.6% to 183p on the news. The government owns more than 70% of the bank after buying shares at 502p each, meaning the prospects of the bank being privatised at a profit look slim.
By comparison, in the first half of 2015 the bank only lost £179 million before tax. The leap in losses during the first half of this year are the result of litigation costs climbing to £1.4 billion, which include the mis-selling of payment protection insurance (PPI).
Legal issues include a group of shareholders suing the bank over a £12 billion rights issue in 2008, alleging that the documents were misleading.
There were hopes a few months back that the bank would reintroduce its dividend for 2016, but these results have killed off any such aspirations.
Trading in the second half looks set to be no better after the Bank of England cut interest rates to an historic 0.25% low, meaning RBS will have to charge less for its lending.
These figures come a week after RBS’ disappointing results in the European banking stress tests. Common equity tier 1 ratio (CET1), or the size of its reserves compared to risk-weighted assets, almost halved to 8.1% after a set of fictional scenarios were applied.
Other negatives include difficulty in creating a separate IT system which has forced the board to change its plans on how it will sell 300 branches under the Williams & Glyn brand.
The sale is part of the terms of the £45 billion bailout and it will now look for a trade sale rather than an initial public offering (IPO). Spanish lender Santander is reported to be interested.