The bank – 81%-owned by the Government – said it had identified £38bn of bad loans to put into an internal bad bank, up to 70% of which it expects it can whittle down over the next two years.
However, RBS said in light of its new plan, it expects to make a full year loss in 2013.
New chief executive Ross McEwan, who has just taken over from Stephen Hester, said: “In light of the new strategy to deal with our high risk assets we expect a significant increase in impairments in Q4 2013 which is likely to result in the Group reporting a substantial loss for the full year.”
In reaction shares tumbled at the opening bell, down 3.9% at 353p by 8:05am.
RBS, along with its peers, has been caught up in the mis-selling of payment protection insurance (PPI).
Its latest results reveal it has set aside another £250m to cover PPI claims, and overall the numbers have left forecasters disappointed, missing expectations.
Overall its loss of £634m missed analyst forecasts of £440m profit before tax, while its operating profit of £438m also missed estimates of £800m.
Pressure had been mounting for the Chancellor George Osborne to separate off RBS’ toxic loans by splitting it into a ‘good’ and ‘bad’ bank. However, the plan announced today will ensure the split is an internal one.
Commenting on the announcement, the Bank of England said it welcomed the development of a more focused strategy: “These actions should create a more resilient institution that is better able to support the real economy without any expectation of further support.”
