RBS may buy back £10bn of stock: Investec

London - Royal Bank of Scotland (RBS) Group may buy back £10bn of stock in 2016 if the lender reduces its risk-weighted assets by £125bn, according to Investec Plc.

RBS has £350bn of such assets on its balance sheet and is projected to cut that total to £225bn by the end of next year as loans run off and assets are sold, Investec analyst Ian Gordon said Tuesday. The UK plans to start selling its controlling stake this year, even as RBS faces a US misconduct fine that may reach $13bn.

“Material uncertainty remains around the terms on which various conduct issues may be resolved, but does little to diminish our buyback expectations” given “the emergence of material surplus capital driven by planned RWA reduction,” Gordon, who rates RBS a buy, said in a report.

“We continue to anticipate at least a £10bn share buyback in 2016.”

Chancellor of the Exchequer George Osborne is preparing to sell shares in RBS as early as September, probably at a loss to the Treasury, as the government seeks to end seven years of ownership and return some of the £45.5bn bailout to taxpayers.

Chief executive Officer Ross McEwan, 57, has reversed RBS’s global expansion and is focusing the lender on UK consumer and commercial banking, reducing assets at the investment bank and closing businesses abroad.

RBS shares fell 1% to 343.4 pence at 11:20 in London, extending its decline this year to 13%.

A large fine could affect the timetable for returning RBS to private ownership. US regulators told the bank it could pay as much as $13bn if it loses a lawsuit over its handling of American mortgage securities.

That sum “appears very much worst case,” Gordon said.

“We think RBS’s existing £2bn provision would be short by only a few hundred million dollars.”