Strong operating performance from Royal Bank of Scotland’s personal and business banking and commercial and private banking divisions contributed to an attributable profit of £293m during the second half this year, although the first half as a whole saw a loss of £153m.
The banking group saw litigation and conduct costs almost halve to £459m, from £856m in the first quarter, although restructuring costs rose to just over £1bn from £453m in the first quarter, as the pace of restructuring accelerated.
Interim results detailed that UK personal and business banking saw operating profits up £21m to £1.01bn for the first half of this year, with a net impairment release largely offset by higher conduct costs.
Operating expenses increased by £103m, or 6 per cent, largely reflecting higher restructuring costs and litigation and conduct costs from increased levels of customer redress provision.
Mortgage balances increased to £105bn, up £3.6bn year-on-year, or 4 per cent above the overall mortgage market for the same period. Gross new mortgage lending in the first half of 2015 was £9.1bn, representing a market share of approximately 9 per cent.
The results stated that following a slow start to the year, RBS’ updated mortgage platform enabled it to meet increased demand for mortgage products through the second quarter, with applications up 43 per cent year-on-year and gross new lending up 43 per cent to £5.4bn, relative to the previous quarter.
Due to the mortgage platform upgrade, the number of mortgage advisers increased to 869 in the UK - up 8 per cent compared with the start of 2015 or 28 per cent compared with Q2 2014 - which helped provide increased lending capacity.
The wider group continues to be embroiled in legal proceedings and regulatory and governmental investigations, including with respect to US mortgage-backed securities, foreign exchange trading and its treatment of UK SME customers, which all incur conduct related costs, including in relation to payment protection insurance and interest rate hedging products.
The report stated that whilst legacy issues continue to be addressed, material further and incremental costs and provisions related to historical conduct are expected. However, the timing and quantum of any future costs, provisions and settlements remain uncertain.
Philip Hampton, chairman of RBS, commented that there are still some obstacles to overcome, especially the resolution of outstanding conduct issues, including investigations into the sale of residential mortgage-backed securities in the US between 2005-07 and the investigation by UK authorities into the bank’s approach to distressed businesses.
“Past experience at RBS and many other banks has demonstrated the readiness of regulators to impose substantial fines and costly redress schemes. These conduct and litigation costs have greatly exceeded the expectations of banks and their investors; judging the ultimate scale of conduct costs remains extremely challenging.”