Business

RBS reports first quarter profit as turnaround continues

RBS Image copyright Getty Images

Troubled Royal Bank of Scotland has reported its first quarterly profit since the third quarter of 2015.

Shares in the bank opened up almost 4% after it posted profits of £259m in the first three months of 2017, compared with a £968m loss a year earlier.

After stripping out restructuring costs, the core operating business made a profit of £1.3bn, up from £1.02bn.

RBS added that its cost-cutting plan for 2017 was ahead of schedule, with 37% of the planned £750m cuts achieved.

In February, RBS reported a £7bn annual loss and chief executive Ross McEwan ordered a £2bn four-year cost-cutting drive involving job losses and branch closures.

The bank, 72%-owned by the UK government, has said 2017 will probably be the final year it makes a loss as it moves nearer to resolving fines and settlements.

Last week, Chancellor Philip Hammond admitted that the government was prepared to sell its stake in RBS at a loss. The stake was bought in 2008 at a cost of £45bn.

Legacy issues

The lender said it had no update on progress in talks with the US Justice Department over claims that it mis-sold mortgage securities in the build-up to the 2008 financial crisis.

In January, RBS set aside a further £3.1bn provision to settle the claims. Resolving the case is one of the bank's two biggest remaining barriers to the goal of making a profit in 2018.

The other hurdle is an obligation that RBS had under European state aid rules to sell its Williams & Glyn unit.

RBS said in February it had found a potential escape from its seven-year hunt for a buyer.

Instead of a sale, the government is applying to the European Commission to approve a new plan whereby RBS will put in place measures to boost the competitiveness of smaller British bank peers.

However, the bank said on Friday that it had no update on this plan.

Laith Khalaf, senior analyst at Hargreaves Lansdown, said: "These longstanding problems aside, this could be the year when RBS finally starts to look a bit more like a swan, rather than an ugly duckling."

'Turned a corner'

RBS said in its statement that there would be no further provision for Payment Protection Insurance mis-selling.

The bank's core capital ratio, a key measure of financial strength, rose to 14.1% from 13.4% a year ago.

"RBS may finally have turned a corner," said Neil Wilson, at ETX Capital.

However, he added that while cost-cutting has been key to the return to profitability, "there is a question mark over how sustainable it is to continue slicing away- the bank has cut costs at a rate of roughly £1bn a year for the last three years and shed around a third of posts since 2013".

"Slashing away at the core business without damaging future earnings and growth is a hard circle to square," he added.

"We've already seen how a lack of profits over the last nine years has dented RBS's ability to invest in new platforms and IT."

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