Royal Bank of Scotland, which this week agreed fresh funding from the UK government worth up to £33bn, on Friday fell to a pre-tax loss of more than £2bn compared to profit of the same amount a year ago.
The bank said it would publish a revised strategy early next year in the wake of changes agreed this week with the European Commission and the government requiring the bank to dispose of its insurance operations and part of its branch network as well as its commodity trading arm and a transaction services business.
The bank said economic recovery would be slow, adding “the pain of economic adjustment will take years to subside.”
However, RBS reported impairments of £3.3bn down from £4.7bn the previous quarter and said they appeared to be “plateauing”, in spite of likely further rising charges at Ulster Bank and Citizens, its US retail operation.
Shares in RBS rose more than 7 per cent in morning trading to 37.8p after the state-owned bank cut its operating losses.
But Stephen Hester, chief executive, warned that losses on its loan book would hold back profits.
“The credit losses on the non-core business will outweigh profits in the core businesses and keep us loss-making,” he said.
Mr Hester predicted the coming quarters would see similar impairment charges.
“We see the run-rate of impairments to have plateaued relative to the first half,” said Mr Hester. “Economic conditions in the UK and more so Ireland, two key markets for RBS, remain relatively weak.”
Profits at its investment banking arm halved after impairment charges of £272m, which “included a large individual failure,” it said.
For the three months to the end of September RBS reported operating losses of £1.5bn down from £3.5bn in the previous quarter. Operating profits, before impairment charges, fell to £1.3bn from £3.6bn a year ago.
Pre-tax losses of £2.2bn were down from a profit of £2.2bn a year earlier. Total income fell to £8.1bn compared with £9.96bn a year ago.
RBS said operating profit for its global banking and markets fell to £375m in the third quarter compared with £1.1bn in the second quarter, as ”exceptionally strong conditions” eased.
The bank this week agreed a state financing package worth up to £33bn, making it by far the world’s biggest government rescue. In return for taking as much as £53.5bn of state money, the Treasury will have an economic interest of 84 per cent in RBS.
Of the £282bn going into the government’s asset protection scheme, £40bn is from commercial real estate lending, £28bn was from structured finance and £25bn from leveraged finance.
Core tier one capital fell to 5.5 per cent from 6.4 per cent at the end of June.