RBS returns to profit

RESULTS: RBS has returned to profitability after slashing it bad debt charge - but the divisional performance was mixed

August 9, 2010

Royal Bank of Scotland (RBS) turned last year’s half-year loss into a reasonable profit, driven - as with figures from the other UK lenders - by a big impairment charge cut, which fell 31 per cent year-on-year to £5.2bn. Although recovery isn’t proving even and RBS’ second-quarter impairment charge actually rose by £126m in the core operations from the first-quarter’s figure.

IC TIP: Hold

The divisional performance looks mixed, too. Global banking & markets’ operating profit slumped £2bn year-on-year to £2.55bn, reflecting such issues as falling short-term interest rates and lower global equity capital markets volumes. While Ulster Bank delivered a £314m loss after the bad debt charge more than trebled to £499m. Meanwhile, the insurance arm has been hit by soaring claims, which turned last year’s £217m profit into a £253m loss.

But the UK retail’s operating profit did recover strongly, from just £37m last year to £416m, as income rose and the impairment charge fell 17 per cent. And the UK corporate business reported a 74 per cent operating profit rise to £708m, helped by a 30 per cent fall in the bad debt charge.

Restructuring is also underway. RBS is now selling its 311 branches in England and Wales, as well as its seven Scottish NatWest branches, to Santander for £1.65bn. That was forced on RBS by EU competition regulators as the price for so much state support. While, last month, the bank sold RBS’ Sempra Commodities’ metals oil and European energy operations to JP Morgan for £1.6bn. Divestments so far should cut £30bn from assets, further reinforcing the capital position - which, given the 10.5 per cent core tier once capital ratio - already looks robust.