RBS strikes third quarterly profit to underline progress

But looming US department of justice fine could still trigger deficit for full year

The prospect arose of Royal Bank of Scotland breaking its nine-year run of losses in 2017 when it yesterday posted its third consecutive quarter in the black.

However, City banking analysts warned an expected settlement with the US department of justice (DOJ) over RBS’S mis-selling of mortgagebacked securities during the financial crash could be as much as £12 billion and push the bank to another annual loss.

Ross Mcewan, the bank’s chief executive, said that there had been no “substantial discussions” with, or opening offer from, the DOJ. He said there was a chance the issue could drag on into 2018, but that the bank hoped a settlement could be reached this year. “There are only a couple of banks outstanding now and we do believe that time will come… we remain optimistic on that,” he said.

Laith Khalaf, senior analyst at Hargreaves Lansdown, commented: “RBS faces the indignity of suffering a tenth year without a profit, though this really all depends on the timing and size of the fine that’s coming from the US department of justice.”

Settling the long-running DOJ investigation is seen as a prerequisite for the UK government to start selling down its remaining 71 per cent holding in the bank after its £45bn state bailout in the financial crisis.

RBS recorded a £392 million profit in the three months to end-september, which compares with a £469m loss in the same period last year. The bank said it was only the second time since 2008 that it had turned a profit for three consecutive quarters, and it takes profits so far this year to £1.3bn.

Mcewan again signalled that the lender is moving on from its troubled past. “Our strategy to deliver a simpler, safer, customer-focused bank, is working.

“We have grown income, reduced costs, made better use of our capital and continued to make progress on our legacy conduct issues. Our core bank continues to generate strong profitsandweremainontrack to hit our financial targets,” he added.

Third-quarter adjusted operating profit came in at £1.2bn compared with £1.3bn last year. RBS has stripped out £708m in costs so far this year. On Thursday, the bank settled a separate US criminal investigation that accused its traders of lying to clients over investments between 2008 and 2013. The DOJ said RBS would pay $44m (£33.4m) under the nonprosecution agreement.

Mcewan added that he was pleasantly surprised at the resilience of the economy, but warned that an interest rate rise – which the market is expecting – will “have an impact for people with mortgages”.

The bank also said that it is reducing exposure to unsecured consumer lending as concerns continue to mount over a household debt boom.

RBS’S total income in Q3 was £3.2bn, compared to £3.3bn in Q3 2016.

mflanagan@scotsman.com