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Restructuring costs hit RBS profits

Restructuring costs hit RBS profits

The Royal Bank of Scotland has recorded a third quarter operating loss of £134m, down from a profit of £1.1bn during the same period last year.

The latest interim management statement explained that restructuring costs remained high at £847m, although litigation and conduct costs fell year-on-year to £129m from £780m.

Income was £596m lower than in the third quarter of 2014, principally driven by a £394m decline in corporate and institutional banking, while income pressures were also seen in UK personal and business banking.

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Within UK personal and business banking, an operating profit of £638m was up 28 per cent from the third quarter last year. Return on equity in the quarter was 32 per cent, compared with 23 per cent in the prior year, principally due to lower litigation and conduct costs.

Operating expenses across the group, excluding restructuring costs and litigation and conduct costs, were £152m lower, with headcount down and restructuring benefits feeding through to a lower cost base, according to the update.

Mortgage activity strengthened further in the third quarter, with applications up two thirds from £6.2bn in Q3 2014 to £10.2bn in the last three months, with new business market share of approvals increasing to 15 per cent.

Net mortgage lending totalled £3.8bn in the third quarter this year, with a strong applications pipeline and gross lending up 42 per cent from Q3 2014 to £7.4bn.

In terms of the bank’s outlook, the statement noted that estimates of overall restructuring and disposal losses guidance for 2015 to 2019 remain unchanged.

“In the fourth quarter of 2015, we expect restructuring costs to remain high as we continue to implement our core bank transformation and disposal losses to be elevated within the overall guidance on disposal losses, although the timing and quantum of these losses are subject to market conditions.”

It added that whilst legacy issues continue to be addressed, material further and incremental costs and provisions in respect of conduct and litigation related matters are expected, and could be substantially greater than the aggregate provisions RBS has recognised.

peter.walker@ft.com