RBS beats forecasts with swing to £259m profit

Listen to this article

00:00
00:00

Royal Bank of Scotland has swung into the black with a net profit of £259m in the first quarter, as the state-backed lender continues to slash costs and clear legacy issues nearly a decade after the financial crisis.

The bank, which is 72 per cent owned by government, beat analyst forecasts of a £50m profit and reversed the £968m loss posted in the first quarter last year.

The profit was boosted by the absence of a large £1.2bn payment made to the Treasury a year ago in order to remove a block on dividend payments, imposed after the bank’s £45.5bn bailout during the financial crisis.

Income rose to £3.2bn in the first quarter, up from £2.8bn a year ago, as the bank continues to increase mortgage lending.

Operating expenses, stripping out one-off items and restructuring, amounted to £1.8bn, compared to £2.2bn a year ago, following a large cost-cutting drive and a focus on digitising the bank.

The boost in income and cost reduction helped RBS post a pre-tax adjusted operating profit of £1.4bn in the quarter, up from £440m in the same period a year ago.

The results come shortly after chancellor Philip Hammond warned that the government’s stake in RBS could be sold at a loss, as the share price continues to languish far below the 502p paid per share to rescue the bank.

Restructuring costs amounted to £577m compared to £238m a year ago as the bank continues to shrink by pulling out of overseas markets, cutting the investment bank and refocusing on UK commercial and retail banking.

Some £54m was earmarked for conduct and litigation, compared with £31m a year ago.

RBS has managed to resolve a number of legacy issues recently, including a settlement announced yesterday with shareholders who allege former directors of the bank, including Fred Goodwin, misrepresented its underlying strength at the time of the £12bn rights
issue in 2008.

The Treasury and Brussels are also assessing an alternative plan to RBS offloading 300 branches under the Williams & Glyn brand, in a move that is set to cost the bank about £750m.

However, RBS has not made any further provisions in the first quarter to cover a looming penalty from US authorities for mis-selling toxic mortgage securities during the financial crisis. RBS set aside £3.1bn at the end of last year for the impending fine, although warned at the time it would probably need to make further provisions.

(Image: PA)

Copyright The Financial Times Limited 2017. All rights reserved. You may share using our article tools. Please don't copy articles from FT.com and redistribute by email or post to the web.