RBS reports operating profit of £3.5bn

Royal Bank of Scotland (RBS) reported stronger underlying profits on Thursday, potentially opening the way for the British government to start selling its 82 per cent stake and for payment of a dividend.

The bank was rescued in a £45.5 billion ($68.9 billion) bailout during the 2008 financial crisis and Britain is now looking at ways to sell off its holding as RBS starts to return to financial health. “The light at the end of the tunnel is coming closer,” Chief Executive Stephen Hester said. “Our job is to deliver a company that is doing its job well and that other investors will want to invest in.” He said the clean-up of the bank should be much more evident into 2014. RBS said it planned to sell part of its US business Citizens in the next two years and would likely float a batch of 315 UK branches it has struggled to offload. Like rival Barclays, RBS has been shrinking its investment banking arm. The bank said it would further reduce the “scale and scope” of this business to focus on core domestic customers.

RBS said about £302 million had been cut from staff bonuses, clawed back from past awards or to be cut from future payments to account for behaviour related to the rigging of interest rates, for which the bank was fined $612 million. It paid £607 million in bonuses for 2012, down 23 per cent from 2011. RBS made an operating profit of £3.5 billion last year, up from £1.8 billion the year before and the highest since its bailout in 2008.

Hester said RBS would probably sell about 25 per cent of Citizens through a share sale in New York which would take place around two years from now. The bank said it also expected to float a batch of 315 branches in Britain that had been earmarked for a sale to Santander, which pulled out of the deal in October. Hester said there were a lack of buyers for UK bank assets at present, so a share sale using the Williams & Glyn’s brand was now its “baseline” plan.

European competition authorities ordered RBS to sell the branches as a consequence of taking state aid. The bank said it expected to ask for an extension to an end-2013 deadline to shed the branches.