RBS triples profits as fall in costs sees recovery continue

Q1 results ahead of City forecasts, but shares fall on US legal concerns

Royal Bank of Scotland (RBS) unveiled tripled first-quarter profits yesterday as the majority taxpayer-owned lender continued its recovery and reaped the benefits of costcutting.

RBS’S underlying profits hit £792 million, up 206 per cent on the same period last year, and more than for the whole of 2017. Income rose 2.8 per cent to £3.3 billion and costs fell 2.1 per cent.

But despite the better than expected performance, shares in the bank fell as full-year guidance remained unchanged and amid concerns over how much it will cost to settle overhanging American litigation.

Operating profit in the period rose 70 per cent to £1.21bn, with RBS chief executive Ross Mcewan hailing a “good set of results”.

Mcewan said: “They show the progress we are making, despite a more competitive market. Our income is up, costs are down and our capital has strengthened again.”

RBS, still 72 per cent owned by the state since its bailout in the financial crash of 2008, said it had booked £209m in restructuring costs and £19m in conduct and litigation charges during the period.

However, it is yet to reach what is expected to be a multi-billion dollar settlement with the US Department of Justice (DOJ) over claims that it mis-sold mortgage-backed securities in the run-up to the financial crisis.

Analysts say the settlement could either tumble the bank back into the red again this year, or dent 2018 profits, but would kick-start the process of resuming dividends.

Alasdair Mckinnon, lead fund manager with Scottish Investment Trust, said: “The improved RBS results are welcome, but a non-event in the big picture, while we still await the judgement and big fines from the Department of Justice.”

Nicholas Hyett, equity analyst at Hargreaves Lansdown, said the profit figures were “significantly ahead of expectations on almost every line.

“You might expect that to be good news for the shares, but with banks, not all profits are equal and revenue mix matters.”

Hyett added that growth in income was largely being driven by volatile trading activity which “might not turn up next time round.

“Loans to customers, the bread and butter of a retail bank, are shrinking and an increasingly competitive UK mortgage market means the bank isn’t earning the same turn on loans that it used to”.

Analyst Callum D’ath of investment manager Brewin Dolphin in Edinburgh, said he remained cautious over the outlook for RBS and stressed that what happens to its shares in the short to medium term is dependent on the outcome of the US case.

The UK government wants to restart share sales in RBS by the end of the 2018-19 financial year and sell off £3bn a year over five years – about twothirds of its stake.

Shares in RBS closed down 4p, or 1.7 per cent, at 268.4p.

businessdesk@scotsman.com