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RBS Might Witness Huge Claims on Consequential Losses in GRG

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Per a Reuters article, The Royal Bank of Scotland (RBS - Free Report) has submitted the manner in which it would be considering claims for consequential losses incurred by customers of its Global Restructuring Group (“GRG”), in a letter to British junior finance minister John Glen.

Consequential losses refer to potential profits which a company fails to earn due to shut down of business.

The bank faced widespread criticism on the process of handing claims by the affected customers of its GRG division. Also, Royal Bank of Scotland has set aside £400 million to address these claims along with appointing a former high court judge Sir William Blackburne to overlook the appeals being made by customers unsatisfied with the compensation.

Contents of the Letter

The bank said that the previous clients of the GRG division can put forward claims for potential losses. However, if these claims get rejected, they cannot appeal to the independent third party, unlike in case of direct losses.

Royal Bank of Scotland accepted that it has received one such claim till now. However, the bank expects to receive many more similar claims, with higher claim value, going forward.

In the letter, the bank also mentioned coming to final terms with the independent third party — Blackburne — on how the process should work and whether he will take on the role of hearing consequential loss appeals.  

The state-backed bank will be paying the costs incurred for customers' initial meetings with professional loss advisors. Also, it would ensure not to gain from any remedy paid to former customers that have undergone liquidation.

Moreover, the bank mentioned the fact that compensation paid to companies, which have ceased to perform, should be passed on to Royal Bank of Scotland itself, as it was a creditor of the former businesses. It plans to use the money received in charity, per the letter.

Royal Bank of Scotland’s diversified business model and commitment to improve financials are likely to support its overall growth in the near term. However, persistent legal hassles might dent its financials.

Shares of Royal Bank of Scotland have gained 18.7% over the past year, outperforming 9.8% growth recorded by the industry.

The stock currently carries a Zacks Rank #5 (Strong Sell).

Stocks to Consider

Lloyds Banking Group plc (LYG - Free Report) sports a Zacks Rank #1 (Strong Buy). Its earnings estimates for 2018 have been revised slightly upward over the last 60 days. Also, its shares have gained 5.9% in the past six months. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Bank of N.T. Butterfield & Son Limited (NTB - Free Report) has witnessed 4.1% upward estimate revision in the last 60 days. In six months’ time, the company’s shares have gained 31%. It carries a Zacks Rank #2 (Buy).

Bank of Montreal (BMO - Free Report) carries a Zacks Rank of 2. The Zacks Consensus Estimate for the company has witnessed slight upward estimate revision in the last 60 days for the current year. Its share price has gained 4.2% in the past six months.

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