RBS chief's call to get the debt under control

RBS chief executive Stephen Hester was speaking yesterday as the bank beat expectations with a return to profit in the first quarter as bad debts continued to shrink.

"All that matters to us is whether there is strong stewardship of the economy because, as we see from Greece, getting the debt under control is very important," he said.

Mr Hester said the events in Greece have highlighted how important it is for nations to "get their finances under control".

As the Conservative and Liberal Democrat parties started talks last night in a bid to thrash out a deal, Mr Hester said that cutting the deficit is "job number one".

Part-nationalised RBS said impairments had continued to drop and margins rose from historically low levels in 2009.

The news follows Lloyds' announcement of an unexpected return to profit last week. Analysts welcomed the news although RBS shares fell 5.7 per cent, down 2.7p to 45.5p as Greece's funding problems revived fears about financial sector stability and the FTSE 100 fell 2.6 per cent to 5123 – wiping 35.5bn off shares.

Banks were among the worst hit stocks with RBS and Lloyds both seeing falls of more than five per cent.

RBS said its exposure to Greece is "manageable" and Mr Hester said his main concern was contagion.

"We have always warned that the world does not spring effortlessly from despair to triumph and there will be aftershocks," he said.

"It's right that markets have an uncomfortable reminder that it is not plain sailing from here. We have to live through that volatility until the economic balances around the world have been dealt with."

Richard Hunter, head of UK Equities at stockbrokers Hargreaves Lansdown, said: "There are some grounds for optimism within the statement, notwithstanding the challenges facing the macro economic environment."

RBS remained cautious about the outlook, warning that bad debt levels will remain high and could be volatile, particularly in assets it is planning to sell.

The bank, 83 per cent state-owned, announced operating profits of 713m for the first three months, against a loss of 1.35bn in the fourth quarter.

Analysts had expected an operating loss.

After costs including 500m related to the Government-backed insurance scheme for bad debts, RBS posted a pre-tax loss of 21m.

Impairments fell to 2.68bn in the first three months compared to 3.1bn in the fourth quarter and the bank said trends are "favourable", confirming its prediction that bad debts peaked in 2009.

Operating profits at the global banking and markets arm fell to 1.47bn from 3.47bn a year ago.

Mr Hester said the division was hit by "damaging" staff losses, though he said 2010 would be the last year of such damaging losses.

He said the bank is making good progress on the restructuring and sales forced on it by European competition authorities and said the sale of 318 branches and its card payment processing business WorldPay are on track.

It expects to strike a deal on both this year.

HSBC sees better profits

Banking giant HSBC said profits were "comfortably ahead" of last year in the first three months of 2010 amid lower toxic debt levels.

HSBC said credit quality improved faster than expected, pushing loan impairment charges to their lowest level in almost two years.

The lender said its US business achieved pre-tax profits for the first time since the financial crisis began in 2007 as bad debt charges dropped back.

HSBC did not give figures for the group on pre-tax profits, but said performance was better than in the first three months of 2009 and the previous three month-period as the investment banking division also saw better performance.

The bank, which has relocated chief executive Michael Geoghegan to Hong Kong, hailed the strength of its Asian-facing business as it said economies in the region would drive the global recovery.

Demand for credit picked up in emerging markets, while appetite in developed nations remained subdued.

HSBC said the UK made "modest progress" in the first quarter, with retail revenues slightly higher than a year earlier.