CompaniesOct 31 2014

RBS records third quarter of profit

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The Royal Bank of Scotland Group has today (31 October) reported a third successive quarterly profit, improved capital and further progress in de-risking.

The banking group’s third quarter results showed attributable profit of £896m, up from £230m in the second quarter and a loss of £828m in Q3 2013.

Profit before tax was £1.27bn compared with £1.01bn in Q2 and a loss of £634m in Q3 2013.

The quarter also included net impairment provision releases of £801m, principally in Ulster Bank and RBS Capital Resolution, alongside litigation and conduct costs of £780m.

RBS confirmed it will retain Ulster Bank following completion of the strategic review, which stated that it has a good market position and can deliver attractive returns, with appropriate investment.

The group reported progress on improving efficiency, with adjusted operating expenses down 5 per cent over the quarter, keeping it on track to deliver its £1bn operating cost reduction target for 2014.

Personal and business banking performed strongly, with income growth of 3 per cent in the quarter pushing operating profit to £881m, up 66 per cent on the previous quarter.

Ross McEwan, RBS chief executive, said the bank was reducing costs and is on track to achieve capital targets.

Restructuring costs totalled £180m, down from £385m in the previous quarter, while litigation and conduct costs, including £400m of potential conduct costs following investigations into the foreign exchange market and an additional £100m provision for payment protection insurance, were £780m, compared with £250m in Q2 2014.

Operating profit, excluding restructuring costs and litigation and conduct costs, improved to £2.23bn from £1.95bn in Q2 and £399m in Q3 2013.

However, operating expenses were up 5 per cent at £3.38bn. Excluding restructuring and litigation and conduct costs totalling £960m - up from £635m in Q2 - operating expenses were down 5 per cent compared with Q2.

Restructuring costs in the fourth quarter are expected to be higher, with some potential write-downs, as the bank reduces its footprint and simplifies systems and product set. Previous guidance on restructuring costs in the four year period to 2017 remains unchanged at £5bn.

The report stated that: “Ongoing conduct and regulatory investigations and litigation continue to present challenges and are expected to be a material drag on both earnings and capital generation over the coming quarters. The timing and amounts of any further settlements or redress however remain uncertain and could be significant.”

Warren Ruhomon, a market analyst at finspreads.com, told FTAdviser that RBS managed to keep a lid on the loan loss situation this quarter, but still had less control over the regulatory and legal side of things.

“RBS said it’s setting aside £400m for the currency fines, and adding to provisions for compensating people mis-sold loan insurance; these figures look to be in-line.

“On pre-tax side, there will be no complaints that Q3 profit is £1.27bn compared to £1.1bn expected and a large rebound from a loss of about £634m brought about by various impairments in Q3 last year.”

peter.walker@ft.com