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RBS surprise second quarter profits cheer investors ahead of government sell-off RBS back into the red following legal costs - but still beats expectations
(about 2 hours later)
Royal Bank of Scotland shares were up around 3% in early trading on Thursday after investors were convinced the bank was making a turnaround. Royal Bank of Scotland will not restart dividend payments until 2017 at the earliest but that should not stop the Government from kicking off the first sale of shares in the taxpayer-owned bank this year, its chief executive said today.
The bank, which is 78% owned by the government, said second quarter operating profit was unchanged at £304 million, while litigation and conduct costs fell to £459 million from £856 million in the previous quarter. Ross McEwan also warned that the bank, which is 78% owned by the taxper following its £45 billion bail out, would continue to have “a very noisy year as we go further on restructuring and dealing with past conduct issues.”
Meanwhile plans for its overhaul had progressed and, provisions to cover past misconduct were lower than feared. Those were key factors in the bank’s first half post-tax loss of £153 million which came after £1.5 billion of restructuring costs and £1.3 billion of legal and compensation bills. But the second quarter attributable profit of £293 million against a  loss of £446 million in the first half - driven by a strong rise in mortgage lending - was better than the City had expected and the shares rose 5.8p to 359p.
RBS racked up costs of just over £1 billion in relation to its restructuring, which has involved shrinking the bank radically, selling off its US Citizens bank, separating the Williams & Glyn's business and cutting thousands of jobs. That is still below the average 502p paid by the taxpayer in the bailout but Chancellor George Osborne has siad the Government should start selling down its stake even if it starts at a loss.
Attributable profit in the second quarter was £293 million, up 27% year-on-year and well ahead of analysts' expectations for a loss of £260 million. McEwan said: “I don’t like seeing losses and I’ll not rest until we can see real profits flowing through to the bottom line. I welcome the Government’s decision to start selling down its stake which will be a significant day for the bank.”
The government earlier this year announced plans to sell down its stake in RBS, which it has announced since it bailed out the lender at the height of the financial crisis.
Outgoing chairman Philip Hampton, who will be replaced by Sir Howard Davies later this year, said there is currently “an appropriate backdrop to the sale of shares”.
Prospective investors were told, however, that the bank did not expect to be in a position to pay a dividend until the first quarter of 2017 at the earliest.
Shares were last up 2.4% at 361.7p sending the stock close to the top of the FTSE 100 leaderboard.