It has been a long slog for Royal Bank of Scotland (RBS) to achieve its aims of strengthening its capital position and growing its income. However, expectation-beating results for the first six months of the year show the group is making progress. Income was up across its three core businesses – personal and small business banking; larger commercial and private banking; and NatWest Markets, its investment bank. Risk-weighted assets reduced further, down £12.8bn to £215bn. Disposals from its ‘bad bank’ made up 62 per cent of the total. Management now expects risk-weighted assets for the run-off operation to be at the lower end of its previous £15bn to £20bn guidance range for the end of 2017.
Income for the personal and business banking business was up 5 per cent to £2.8bn, driven by a 10 per cent increase in net lending. Litigation and conduct charges were also much reduced from £421m to just £13m. That meant operating profits more than doubled. However, lower margins on mortgages contributed to a tightening in the net interest margin (between what is earned and paid out) to 2.97 per cent, from 3.07 per cent during the prior period.
However, NatWest Markets provided the biggest beat to expected income, up 14 per cent to £932m. Income from corporate financing transactions doubled to £187m on the back of improved market conditions. That meant, despite only a slight increase in operating expenses, operating profits grew three-quarters to £156m. Meanwhile, a reduction in counterparty and market risk – which spiked in the aftermath of the last year’s referendum – meant risk-weighted assets were also down £5bn.
Overall net lending at the commercial bank declined by £1.1bn to £98bn, principally due to a reduction in loans to banks and financial institutions, although loans for asset and invoice finance grew. Lower margins and advice fees meant income was down at the private bank. However, lower adjusted operating expenses mean operating profits there increased by 61 per cent to £82m.
Analysts at Investec expect net tangible assets of 290.4p a share at 31 December 2017, down from 295.9p in 2016.
| ROYAL BANK OF SCOTLAND (RBS) | ||||
| ORD PRICE: | 262p | MARKET VALUE: | £ 31.2bn | |
| TOUCH: | 261.9-262.1p | 12-MONTH HIGH: | 271p | LOW: 168p |
| DIVIDEND YIELD: | NIL | PE RATIO: | NA | |
| NET ASSET VALUE: | 413p | LEVERAGE: | 17.8 | |
| Half-year to 30 Jun | Total operating income (£bn) | Pre-tax profit (£bn) | Earnings per share (p) | Dividend per share (p) |
| 2016 | 6.06 | -0.27 | -17.6 | nil |
| 2017 | 6.92 | 1.95 | 7.9 | nil |
| % change | +14 | - | - | - |
| Ex-div: | na | |||
| Payment: | na |
