News Column

RBS reports largest profits since bailout as share price soars

July 26, 2014

Jill Treanor,

Royal Bank of Scotland has reported its highest first-half profits since its 2008 taxpayer bailout, after an improvement in the economic backdrop and lower bad debts.

Shares in the 81% taxpayer owned bank jumped 12% after it was forced to issue its figures a week early as a result of improvement in profit to 2.6bn in the six months to the end of June.

A year ago, when Ross McEwan was named as chief executive the bank had reported a 1.3bn profit. But even as the new boss said the results released on Friday showed steady progress, he issued a cautionary note.

"We are actively managing down a slate of significant legacy issues. This includes significant conduct and litigation issues that will likely hit out profits going forward.

"I am pleased we have had two good quarters but no one should get ahead of themselves here there are bumps in the road ahead of us."

The bank's share price is still well below the 500p average at which the taxpayer pumped in 45bn to prevent the Edinburgh-based institution from collapsing during the 2008 crisis. Unlike its rival Lloyds Banking Group, in which the government has reduced its stake to 24% from 42%, George Osborne has not yet signalled a selloff in the RBS shares.

"These results show that the steady progress we are making as we take the steps to a much simpler, smaller and fairer bank," said McEwan.

The improvement in profits was driven by a 1.8bn fall in losses on bad debts to 269m as the income it generated actually fell 6% to 10bn. The bad debts improved in all divisions, particularly in the UK and Ireland where the bank owns Ulster bank which has incurred substantial losses since the crisis.

The better than expected figures were also due to the run down of non-core assets put in a new mini bad bank last year which are on course to fall from 29bn to 15bn. The run down of these assets was expected to cost as much as 4.5bn between 2014 and 2016 but the bank now things it will cost between 2.5bn and 3bn as a result of "the more favourable economic environment".

Ulster bank which is subject to speculation that a RBS could link up with a private equity partner reported a first half profit of 55m as bad debts fell to 57m from 503m.

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Source: Guardian Web

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