27th Apr 2018 10:32
LONDON (Alliance News) - Shares in Royal Bank of Scotland Group PLC fell on Friday despite a rise in first quarter income and profit, with its common equity tier one ratio also climbing but its net interest margin slipping slightly.
This was largely due to the uncertainty that hangs over the bank in the form of a yet-to-be settled case with the US Department of Justice over mis-sold residential mortgage-backed securities.
"Estimates on the scale of the fine run from USD1 billion all the way up to USD9 billion, and RBS has currently set aside GBP3 billion to cover it," explained Russ Mould, investment director at AJ Bell
"For RBS to be fully rehabilitated this situation needs to be resolved and the company also needs to move out of state hands and resume dividend payments, so despite an impressive quarterly performance there's still plenty for management to do," Mould added.
At the release in February of RBS's results for 2017, the bank similarly saw its share price fall on the day despite turning to its first bottom-line annual profit in a decade as investors continued to brace for the impact of the upcoming DoJ settlement.
Shares in RBS - in which the UK government still holds a controlling 71% stake - were down 1.8% on Friday at 267.50 pence and are 3.8% lower in the year-to-date.
The bank on Friday said total income for the three months to the end of March came in at GBP3.30 billion, up from GBP3.21 billion a year before.
RBS said net interest income declined to GBP2.15 billion from GBP2.23 billion a year ago, though non-interest income rose to GBP1.16 billion from GBP978 million.
Operating expenses in the period fell to GBP2.01 billion from GBP2.45 billion.
The bank posted a pretax operating profit of GBP1.21 billion for the period, up from GBP713 million a year before. RBS's attributable profit for the period of GBP792 million was also up from GBP259 million last year.
Net interest margin in the period was stable at 2.04% compared with the final quarter of 2017, but 20 basis points lower than 2.24% the first quarter of 2017 "reflecting increased liquidity, mix impacts and competitive pressures on margins".
CET1 ratio increased to 16.4% in the period from 14.1% last year and 15.9% as at December 31, remaining ahead of target, the bank said.
RBS retained its 2018 guidance and medium-term outlook.
Among divisions, UK Personal & Business Banking saw total income rise slightly to GBP1.59 billion from GBP1.58 billion a year before, with operating expenses falling to GBP836 million from GBP935 million but impairments up to GBP57 million from GBP43 million.
Operating profit for the division was GBP698 million, up from GBP605 million at the end of March last year, with a return on equity of 27.9% versus 23.9%.
Net loans & advances to customers decreased by GBP1.2 billion to GBP160.5 billion from GBP161.7 billion for the fourth quarter of 2017, as a result of increased redemptions in the first quarter of the year and weaker new mortgage lending due to "intense" competition in the past six months.
Commercial Banking saw total income steady at GBP865 million, with impairments down to GBP23 million from GBP61 million. The division posted an operating profit of GBP397 million compared to GBP254 million a year before, with a return on equity of 12.2% versus just 5.7% a year before.
RBS International's total income rose to GBP137 million from GBP98 million, with operating profit up to GBP78 million from GBP45 million and a return on equity of 23.2% versus 12.0% last year.
NatWest Markets reported a rise in total income to GBP437 million from GBP429 million, and turned to an operating profit of GBP97 million from a loss of GBP107 million a year prior. The unit posted a positive return on equity of 2.0% compared to negative 4.4% last year.
Profit at NatWest Markets was aided by a reduction in operating expenses, down to GBP349 million from GBP583 million a year before which RBS said was due to lower strategic costs, reduced litigation and conduct costs and an 17.9% reduction in other expenses, "principally reflecting the wind down of the legacy business".
Separately on Friday, RBS said it has appointed Patrick Flynn as a non-executive director with effect from June 1.
"I am pleased to welcome Patrick Flynn to the board as a Non-executive Director. His career in banking, latterly as Chief Financial Officer of ING Groep NV at an extremely challenging time, will further strengthen the board's composition and perspectives," said Chairman Howard Davies.
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