2nd May 2014 12:14
LONDON (Alliance News) - Royal Bank of Scotland Group PLC Friday said first-quarter pretax profit doubled, helped by lower operating expenses and a significant reduction in impairment losses, as the part-nationalised bank's creation of an internal "bad bank" aids its gradual recovery.
RBS shares leapt on the news. They rose to an intraday high of 347.76 pence per share, though by early afternoon they had slipped back to 337.19p, still up 10% on the day.
The bank said good progress is being made towards developing detailed plans to implement its new structure - built around Personal & Business Banking, Commercial & Private Banking, and Corporate & Institutional Banking - which was unveiled in February alongside its 2013 earnings.
In a statement, RBS said first-quarter pretax profit increased to GBP1.64 billion from GBP826.0 million in the corresponding quarter a year earlier, even as total income, excluding own credit adjustments, disposals and a number of other items, decreased to GBP5.05 billion from GBP5.16 billion.
Net interest income rose marginally to GBP2.70 billion from GBP2.67 billion, and the bank expects a "modest increase" in the net interest margin for the remainder of the year, but non-interest income fell to GBP2.36 billion from GBP2.49 billion.
Operating expenses, excluding integration and restructuring costs amongst other items, were reduced to GBP3.19 billion from GBP3.38 billion, with RBS saying it remains on track to meet its target of cutting costs by GBP1.00 billion in 2015. Expenses were cut by reducing staff headcount by 6,300 and from lower bonuses, as well as the scaling back of RBS's investment banking division.
Operating profit in the retail and commercial banking businesses was up 36% to GBP1.37 billion, driven by cost control and improving impairment trends, particularly in UK Corporate and Ulster Bank.
Overall, impairment losses fell to GBP362.0 million from GBP1.03 billion due to "significant improvements" in Ulster Bank's mortgages in arrears and in UK Corporate and International Banking.
Impairments in RBS Capital Resolution, the "bad bank" established at the start of the year to reduce balance sheet risk and wind down higher-risk assets from RBS's other divisions that require higher levels of capital, totalled GBP108.0 million as it reduced risk-weighted assets by GBP14.00 billion to GBP51.00 billion during the quarter, with operating losses lower than expected at GBP114.0 million.
Overall, risk-weighted assets decreased by GBP15.00 billion to GBP414.00 billion at the end of the quarter, helping to boost the group's common equity tier 1 ratio to 9.4% from 8.6% over the course of the quarter.
The bank said it is making "steady progress" towards achieving an 11% common equity tier 1 ratio by the end of 2015, as well as pushing it to 12% or more by the end of 2016.
Critically, the 81%-state-owned bank followed Lloyds Banking Group in making no further provision for the payment protection insurance mis-selling scandal.
"Just over two months ago, I set out our plan for making RBS the most trusted bank in the UK. Today's results show that in steady state, RBS will be a bank that does a great job for customers while delivering good returns for our shareholders," Ross McEwan, chief executive, said in a statement.
"But we still have a lot of work to do and plenty of issues from the past to reckon with. Everyone at RBS is focused squarely on doing everything we can to earn the trust of our customers and in the process change the banking sector for the benefit of the UK," McEwan added.
RBS warned that ongoing conduct and regulatory investigations and litigation continue to create "challenges and uncertainties" for it and other banks, saying that the timing and amounts of any further settlements or redress remain uncertain.
The bank has been hit by shareholder claims alleging that its made "untrue and misleading statements" in connection with its 2008 rights issue.
While integration and restructuring costs amounted to GBP129.0 million the first-quarter, RBS said they are likely to be "considerably" higher for the remainder of the year.
RBS, which gained GBP191.0 million in the quarter from selling the remainder of its stake in Direct Line Insurance Group PLC earlier this year, said it is still on track to float US lender Citizens in the fourth-quarter of this year, with progress also being made on the divestment of Williams & Glyn in the UK.
By Samuel Agini; [email protected]; @samuelagini
Copyright 2014 Alliance News Limited. All Rights Reserved.
Related Shares:
Direct LineRBS.L