The return to health of the UK’s state-aided banks Lloyds and RBS will be tested next week.
Royal Bank of Scotland’s quarterly figures on Friday will be dominated by attention on the outcome of a Government-commissioned report into whether the bank’s “bad” assets should be hived off.
The study by investment bank Rothschild has advised Chancellor George Osborne on the merits and pitfalls of separating operations such as Ulster Bank and £40bn of non-core loans in order to accelerate the privatisation of the remaining good parts.
Any such move could also result in the accelerated sale of its American retail bank Citizens, valued at around £8bn.
Friday’s results will be the first for new chief executive Ross McEwan, after he replaced Stephen Hester this month.
Mr Hester grew up in Yorkshire and went to Easingwold school.
The New Zealander, who previously ran RBS’s retail banking arm, has promised to boost lending to support the economy and put customers at the heart of its strategy.
According to UBS, the 80 per cent state-owned bank is expected to report flat profits of £1.1bn from core operations in the three months to the end of September, helped by Britain’s recovering economy.
Despite progress on repairing its balance sheet, Investec analyst Ian Gordon warned RBS is still battling a “dangerous cocktail of legal, political and regulatory obstacles”.
However, fears over a damaging carve-up have largely been offset by optimism over more non-core asset sales - including its agreement to sell more than 300 surplus branches to investors including the Church of England.
Britain’s buoyant housing market has also helped underpin the stock, with Mr Gordon predicting a “meaningful pick-up” in mortgage lending during the quarter.
The British Bankers’ Association recently reported the strongest month for mortgage approvals since 2009.
RBS joins most of the UK’s major lenders in backing the latest phase of the Government’s Help to Buy scheme, which guarantees mortgages to allow people to buy a home with a five per cent deposit.
Analysts at Credit Suisse predict a “weak quarter” by the bank. “We expect cost reduction will not have kept up with the pace of revenue decrease,” they said.
Taxpayer-backed Lloyds Banking Group will update the City on its third-quarter performance amid a period of upheaval for both businesses.
The trading update for Lloyds on Tuesday will be the first since the Treasury began the process of returning its stake in the bank to the private sector, selling a six per cent chunk for £3.2bn to institutional investors last month.
The Lloyds group includes Halifax Bank of Scotland (HBOS).