ROYAL BANK of Scotland trebled its profit in the first quarter as it beat analysts’ expectations and handed a boost to new chief executive Ross McEwan, who is aiming to turn around the Government-controlled bank’s fortunes.
The bank reported a net profit of £1.2 bn, up from £400m the year before, benefiting from improved cost controls and a reduction in losses from bad loans.
The performance marked only the sixth occasion RBS has reported a quarterly profit since Britain pumped £45bn into the bank during the 2008 financial crisis, leaving it with an 81 per cent shareholding, and contrasted with an £8.7bn full-year loss in 2013. City analysts had forecast a profit of £200m.
“Today’s results show... RBS will be a bank that does a great job for customers while delivering good returns for our shareholders,” said Mr McEwan, who took over from Yorkshireman Stephen Hester last October.
However, Mr McEwan added that RBS still has “a lot of work to do and plenty of issues from the past to reckon with”.
Its shares, which had fallen earlier this year to an eight- month low, jumped more than 12 per cent to their highest since late February.
But taxpayers are still sitting on a loss of £14bn on their holding, while banking and political sources say a return to full private ownership may take up to five years.
The results, which come a day after fellow bailed-out bank Lloyds also reported improved earnings, reflect the impact of RBS’s decision last November to create an internal “bad bank”, designed to fence off its riskiest assets and leaving the rest of the bank in a better position to lend.
The results also include no new charges for past misconduct, such as the mis-sale of payment protection insurance and possible mis-selling of US mortgages.
RBS had said in January it would take a £3bn charge in its 2013 results to cover the cost of these misdeeds, resulting in its top executives not receiving any bonuses for the past year.
Mr McEwan said the bank did not intend to settle early with investors who claim they were misled over its £12bn rights issue of new shares six years ago and are suing it for billions of pounds.
“We understand their issues, but we believe we have strong defences to the claims and that is why we intend to defend these vigorously. That’s the reason why these things will be set out in court rather than in an early settlement, we have a good defence on this,” he said.
Hundreds of investors, including some of the bank’s biggest institutional investors, claim they were misled by RBS over its massive 2008 rights issue, raising the prospect of a high-profile court battle next year. RBS said on Friday a further claim was filed in the High Court in London on April 28.
RBS is also among several major banks assisting regulators around the world investigating allegations of collusion and price-rigging in the global currency market. It said the timing and amounts of further settlements were uncertain.
The bank said an improvement in economic confidence in Britain had continued and it expected a modest increase over the rest of the year in its net interest margin, a key measure for banks which reflects the difference in the rates at which it lends and pays out to depositors. “All trends for this bank are going in the right direction,” said an analyst.