Royal Bank of Scotland tried to put its troubled past behind it yesterday by making a £3.6bn ($5.1bn) provision to top up its pension fund and make amends for British and US mis-selling. 
Chief executive Ross McEwan has been trying to clean up RBS so that the UK can shed the 73% stake it holds following the bank’s £46bn rescue during the financial crisis. 
Yesterday’s surprise provisions, which include a goodwill write-down at its private bank, will result in a £2.5bn hit to profit in the fourth quarter, the bank warned, sending its shares down 3.2% by 1024 GMT. 
The news wipes out any expectation of a profit for the year at RBS, which has not made a profit for seven years. In a ‘buy’ note published on Monday, analysts at UBS had estimated pretax profits of just £354mn for 2015 as a whole. 
“I am determined to put the issues of the past behind us and make sure RBS is a stronger, safer bank. We will now continue to move further and faster in 2016 to clean-up the bank and improve our core businesses,” said McEwan, who joined in October 2013. 
The provisions unveiled yesterday will dent the bank’s common equity Tier 1 capital ratio — a key measure of financial strength, by 1.6 percentage points to 14.6%. 
Shareholders and analysts bemoaned the rising costs of cleaning up historical problems and continued uncertainty about what RBS will need to pay to settle US investigations into claims it misled investors in mortgage-backed securities. 
“The benefit of being strongly capitalised is that these issues may now be dealt with more quickly but there are still several large and lumpy items — mainly the settlement with the DoJ — where predicting the size of any charge is difficult,” one of the bank’s thirty largest shareholders told Reuters. 
The bank said it will set aside an extra $2.2bn for US mortgage-related litigation, which will reduce fourth-quarter profits by £1.5bn. 
The additional provision brings the total set aside for this issue to $5.6bn, chief financial officer Euan Stevenson said, adding that no provisions have been made relating to the Department of Justice’s RMBS-related conduct probe. 
RBS will also make a £500mn provision for payment protection insurance mis-selling in Britain. Stevenson said this reflected expectations of higher claim volumes ahead of a 2018 deadline. 
“We still see significant additional litigation charges in 2016, on top of the charges that have been announced today,” analysts at Citi said in a note to clients. 
RBS said it would take a £498mn goodwill impairment charge at its private bank and make a £4.2bn payment into its pension scheme due to accounting policy changes, which will not affect the bottom line.