By Matt Scuffham
EDINBURGH (Reuters) - Royal Bank of Scotland expects a substantial increase in its capital as a result of disposals over the coming years and intends to return some of it to shareholders, Chief Executive Ross McEwan said.
The bank, 78 percent owned by the government, said in February it would shrink its investment banking operations drastically, pulling out of 25 countries across Europe, Asia and the Middle East, to help it refocus on lending in Britain. It is also selling its U.S. bank Citizens.
"As we reduce risk, and make expected divestments over the coming years, we anticipate a substantial increase in our capital as a result. Subject to approval, we intend to return any surplus capital to our shareholders," McEwan told the bank's annual meeting on Tuesday.
RBS is targeting a core Tier 1 capital ratio of 13 percent and plans to return any capital about that level.
The bank's core Tier 1 ratio, a key measure of its financial strength, stood at 11.5 percent at the end of the first quarter and the sale of Citizens is expected to result in a improvement of about 300 basis points.
Paying a dividend or buying back shares would make the bank more attractive to shareholders and help the government dispose of its stake.
British finance minister George Osborne has said the government will start selling its shares in the coming months. The bank was bailed out at a cost of 45.8 billion pounds ($72 billion) to taxpayers during the 2007-09 financial crisis.
Prior to the meeting, Chairman Philip Hampton said it would take the government several years to sell its entire shareholding in the bank.
"I've long thought the process should have started," Hampton, who is to leave the bank this year after six and a half years, told reporters before the meeting.
"It's a lot of stock to shift and I think it will take several years," he said.
Hampton oversaw a huge restructuring of RBS, which shed more than 1 trillion pounds of assets as it re-focused on lending to British households and businesses.
However, RBS remains hampered by past misconduct and is expected to have to pay out billions of dollars later this year to settle claims it misled investors in mortgage-backed securities. It has already been fined for the attempted manipulation of foreign exchange and benchmark interest rates.
"There is still work to do across the industry to improve culture," said Hampton. "There is no place for that behaviour in this bank." ($1 = 0.6352 pounds)
(Editing by Steve Slater and Keith Weir)
