RBS in black – but it’s not out of the woods yet

ROYAL Bank of Scotland is expected to report a second consecutive quarter in the black this week, even as it stomachs nearly half a billion in extra restructuring and misconduct costs.

A consensus of City analysts forecast that the lender, still 72% owned by the taxpayer, will report a £343m profit for the three months to June 30, following a £259m profit in the first quarter.

Graham Spooner, investment research analyst at The Share Centre, said investors are beginning to “see light at the end of what has been a very long tunnel”.

However, RBS is also predicted to detail £248m in conduct and litigation costs and £228m in restructuring charges.

When added to £577m of restructuring costs booked in the first quarter, it would take the total for the six months to June to over £1bn.

The group has racked up several billion in litigation and conduct costs since it was rescued by the Government at the height of the financial crisis.

Earlier this month, RBS agreed a £4.2bn US settlement over claims it mis-sold toxic mortgage bonds in the run-up to the crisis, and it will take a £151m charge in its second quarter as a result of the deal.

However, it is yet to reach a separate settlement with the Department of Justice (DoJ), which is expected later in the year, and the bank may need to set aside more cash to settle outstanding claims.

Laith Khalaf, senior analyst at Hargreaves Lansdown, said: “The hills are alive with the sound of lawyers cashing cheques.

“Much will depend on the timing, and the extent, of any action from the US Department of Justice, which is an unpredictable amount of heartache waiting for RBS shareholders in the not-toodistant future.”

Chief executive Ross McEwan has signalled that the bank could return to a full-year profit by 2018, but forecasts suggest that it will remain in the red this year.

Chancellor Philip Hammond made the stark admission in April that the Government is prepared to sell its stake at a loss to the public purse, and Mr Khalaf said that RBS still faces “considerable headwinds”.

He added: “When it comes to reaching the break-even point for the taxpayer, the share price still has a mountain to climb.”

The Government bought its 72% stake in the bank for £45bn in 2008 at £5.02 a share. Shares are now worth around half that.

The Treasury also recently announced that RBS will avoid being forced to sell off its Williams & Glyn branch network by doling out £835m to help boost competition among UK banks.

It follows a joint review by the European Commission (EC) and the Treasury.