25th Jul 2014 12:04
LONDON (Alliance News) - Royal Bank Of Scotland Group PLC Friday said it expects to report a near doubling in first-half pretax profit, driven by a turnaround in impairments due to improving credit conditions in the UK and Ireland, and the performance of the part of the bank tasked with running down assets that require especially high levels of capital.
RBS published its results a week ahead of schedule, though they are still being finalised, because of better-than-anticipated operating performance. Shares in state-backed bank were leading the FTSE 100 Friday, quoted up 13% at 371.70 pence.
While the UK government has been able to begin selling off its stake in Lloyds Banking Group PLC, which also required a bailout in the midst of the financial crisis, it has yet to begin selling off its near-80% holding in RBS.
In a statement, RBS said it expects to report GBP2.65 billion in pretax profit in the first six months of 2014, compared with GBP1.37 billion in the corresponding period last year. Total income, made up of net interest income and non-interest income, fell by 5.9% to GBP9.98 billion, but operating expenses fell to GBP7.11 billion from GBP7.75 billion, with overall headcount down by 8,000 over the past 12 months.
The bank also reported a significant improvement in impairment losses, which fell to GBP269.0 million from GBP2.15 billion, with all its core businesses showing reductions in impairment losses. RBS Capital Resolution, which is running down capital intensive or risky assets to free up capital for the bank, saw a net write-back of provisions due to making sales at "favourable" prices.
However, second-quarter pretax profit fell to GBP1.01 billion from GBP1.64 billion in the corresponding quarter last year due to a GBP130.0 million write-down of goodwill and a GBP190.0 million charge for own credit.
"The results we are posting today show the steady progress we are making as we take the steps to be a much simpler, smaller and fairer bank. These results show that underneath all the noise and huge restructuring of recent years, RBS is a fundamentally stronger bank that can deliver good results for customers and shareholders," Chief Executive Ross McEwan said in a statement.
However, McEwan, who has been working on RBS's recovery since last year replacing former boss Stephen Hester, who has since taken the helm at RSA Insurance Group PLC, sounded a note of caution due to the legacy problems casting a shadow over the bank.
"We are actively managing down a slate of significant legacy issues. This includes significant conduct and litigation issues that will likely hit our profits going forward. I am pleased we have had two good quarters, but no one should get ahead of themselves here - there are bumps in the road ahead of us," McEwan said.
Some of those legacy problems returned in the second-quarter, with the bank setting aside a further GBP150.0 million in provisions for payment protection insurance and GBP100.0 million for interest rate swap redress. The bank has now set aside arout GBP3.25 billion for the PPI scandal and about GBP1.4 billion for swap redress.
Restructuring costs increased by GBP243.0 million to GBP514.0 million, as the group continues its work on Williams & Glyn, the bank it is spinning off to comply with European demands as a result of RBS's state aid in the wake of the financial crisis.
RBS said that it expects restructuring costs to be higher in the second-half as measures to meet its GBP1.0 billion cost-cutting target for 2014 intensify. RBS expects about GBP1.5 billion in restructuring costs in 2014. Overall, the bank expects restructuring costs to total about GBP5.0 billion over 2014 to 2017.
RBS said that its common equity tier 1 capital ratio strengthened to 10.1% from 8.6% at the end of 2013, aided by reductions in risk-weighted assets, which require higher levels of regulatory capital, in corporate and institutional banking and in Capital Resolution. The bank said it is making good progress towards achieving its target of an 11% ratio by the end of 2015 and at least 12% by the end of 2016. However, it said that the ongoing conduct and regulatory investigations and litigation it has warned about are expected to be a drag on capital generation over the coming quarters.
By Samuel Agini; samagini@alliancenews.com; @samuelagini
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