‘Light at end of the tunnel’ as RBS posts £939m profit

Bailed-out bank’s strong results come as it unveils Amsterdam as possible new European base after Brexit

THERE is “light at the end of the tunnel” for Royal Bank of Scotland, the lender that received a £45bn state bailout at the height of the financial crisis, according to its boss Ross Mcewan.

The first half-year profit in three years encouraged the chief executive to state he believed the beleaguered bank – which is 72pc owned by the taxpayer after receiving a massive cash injection – is at last turning a corner.

RBS made £939m in profits in the six months to June, beating analysts’ expectations, buoyed by unexpectedly strong results in its investment banking arm, Natwest Markets, and its retail lending business. The profit came after a £2bn loss the previous year.

The bank made a surprise admission that it is being investigated by the Financial Conduct Authority for potential breaches of money laundering rules “in relation to certain customers” but gave no further details. It also unveiled Amsterdam as the potential new home of its European investment banking business after Brexit, a move that could involve relocating 150 Natwest Markets staff.

Mr Mcewan cautioned it was not a done deal saying: “It’s in case we do need it. We’ll be operationally ready if required.” He said the Dutch capital had been chosen as RBS already has a trading licence in the Netherlands, a legacy from its disastrous ABN Amro takeover before the financial crisis.

The bank is already in talks with local authorities about adapting its licence. Any relocation would cost “tens of millions of pounds” in both set-up and running costs.

Despite the good start to the year RBS reiterated that it does not expect to make its first full-year profit for several years in 2017, and is instead predicting a return to the black until 2018.

The downbeat forecast is because of an expected multibillion-pound fine in the second half from the US Department of Justice (DOJ) for its role in selling securities linked to subprime mortgages before the crash. Analysts expect this penalty to come in at between £5bn and £6bn, though some think it could be as high as £15bn.

Mr Mcewan conceded the fine may not be imposed this year as the DOJ is in disarray under the Trump presidency. He said: “It may not be done this year but I’m still optimistic it will be done.”

The chief executive also sounded a warning about a consumer credit glut, saying Bank of England Governor Mark Carney was “rightly asking questions” after he ordered banks to explain their consumer lending policies. He pointed out that RBS was focusing on expanding secured credit including mortgage lending, but said it was not vacating the unsecured market – which represents 4pc of its lending – and was lining up the launch of a car loan product.

Operating profits at RBS’S core high street and small businesses lending arm and Natwest Markets were both up strongly, rising by 19pc and 44pc respectively to £1.3bn and £299m.

But the group was once again weighed down by costs relating to restructurings and misconduct, running to a combined £1.2bn. This figure included the first payment of £151m towards a separate £4.2bn settlement with US housing authorities over misselling toxic mortgages.

Mr Mcewan told journalists at a press conference: “It does feel much more like this business can see the light at the end of the tunnel and it can’t see a train coming at us any more.” He added there was “improvement to be done” but the business was focused “on going forward… rather than history”.

RBS shares jumped more than 4pc in early trading before falling back to 2pc up at the close at just under £2.62.