News Column

UPDATE: RBS Reports Profit Rise But Warns Of "Bumps In Road Ahead"

July 25, 2014

Samuel Agini

LONDON (Alliance News) - Royal Bank Of Scotland Group PLC Friday said it expects to report a near doubling in first-half pretax profit, driven by a turnaround in impairments due to improving credit conditions in the UK and Ireland, and the performance of the part of the bank tasked with running down assets that require especially high levels of capital.

RBS published its results a week ahead of schedule, though they are still being finalised, because of better-than-anticipated operating performance. Shares were Friday quoted up 13% at 370.01 pence.

In a statement, state-backed RBS said it expects to report GBP2.65 billion in pretax profit in the first six months of 2014, compared with GBP1.37 billion in the corresponding period last year. Total income, made up of net interest income and non-interest income, fell by 5.9% to GBP9.98 billion, but operating expenses fell to GBP7.11 billion from GBP7.75 billion, with overall headcount down by 8,000 over the past 12 months. The bank also reported a significant improvement in impairment losses, which fell to GBP269.0 million from GBP2.15 billion. RBS said that

However, in the second-quarter alone pretax profit fell to GBP1.01 billion from GBP1.64 billion.

"The results we are posting today show the steady progress we are making as we take the steps to be a much simpler, smaller and fairer bank. These results show that underneath all the noise and huge restructuring of recent years, RBS is a fundamentally stronger bank that can deliver good results for customers and shareholders."

However, McEwan sounded a note of caution due to the legacy problems casting a shadow over the bank.

"We are actively managing down a slate of significant legacy issues. This includes significant conduct and litigation issues that will likely hit our 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," McEwan said in a statement.

Some of those legacy problems returned in the second-quarter, with the bank setting aside a further GBP150.0 million in provisions for payment protection insurance and GBP100.0 million for interest rate swap redress. The bank has now set aside about GBP3.25 billion for the PPI scandal and about GBP1.4 billion for swap redress.

Restructuring costs increased by GBP243.0 million to GBP514.0 million, as the group continues its work on Williams & Glyn, the bank it is spinning off to comply with European demands as a result of RBS's state aid in the wake of the financial crisis.

RBS said that it expects restructuring costs to be higher in the second-half as measures to meet its GBP1.0 billion cost-cutting target for 2014 intensify. RBS expects about GBP1.5 billion in restructuring costs in 2014. Overall, the bank expects restructuring costs to total about GBP5.0 billion over 2014 to 2017.

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Source: Alliance News

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