RBS back in the black for first time since 2007
Saturday 07 August 2010
Royal Bank of Scotland scraped back into the black for the first time since 2007 after losing more than £1bn a year earlier, as its restructuring plan began to take effect and the financial markets improved.
RBS, which is 83 per cent owned by the taxpayer, rounded off a week of positive banking results in the UK as it announced a net profit of £9m for the first six months of the year. Interim revenues rose to £17.7bn from £14.7bn a year earlier.
The bank's chief executive Stephen Hester said RBS was "on track" and the rebuilding strategy was "proceeding according to plan; maybe a little better". However, he said: "There is plenty left to do and we may slip up as the race is not yet run."
Ian Gordon, an analyst at Exane BNP Paribas, welcomed the results, saying "commendable progress had been made by the new management team".
RBS was bailed out by the UK government in October 2008 after it was hit by the credit crunch in the wake of its acquisition of ABN Amro. After Sir Fred Goodwin was ousted as chief executive, the new management drew up a five-year restructuring plan to reshape the business and cut costs. Since 2008, it has axed 23,000 employees.
Mr Hester said: "We are making good progress with disposals and overall business restructuring." The group said it was three-quarters of the way through the sale of its smaller non-core businesses and was making progress with the sales mandated by the European Commission.
As a result, it sold over 300 branches to Santander in a deal worth £1.6bn this week. Yesterday, RBS sold 80 per cent of its payment-processing arm WorldPay to Advent International and Bain Capital, for up to £1.9bn.
Mr Hester said: "The rebuilding of RBS is a marathon and not a sprint. I am pleased with the steady momentum in our core customer-facing businesses." RBS's operating profits hit £1.5bn, from a loss of £3.3bn in the first half of last year. Over half of the core profit was made up by RBS Global Banking & Markets (GBM), the investment banking division, although revenues fell by more than 30 per cent in the second quarter.
Mr Hester said the division's difficulties were "reflecting negative capital market sentiment, increased volatility and a resulting reduction in client activity". This marked a sharp contrast with Barclays, which reported the previous day and saw growth in its investment banking operations.
Joseph Dickerson, an analyst at Execution, said: "The performance on GBM was a little light, but on the plus side, UK retail banking looked good." As the economy strengthened in the second quarter, the group's impairments fell from £2.6bn to £2.4bn. Yet it was affected by a deterioration in the loan portfolio of its Irish business.
RBS said it had lent £23.5bn in the first half, £14.4bn of which was to small and medium-sized businesses. "We are supporting our customers where it is appropriate to do so," Mr Hester said. He added that applications for business loans had dropped 7 per cent. The bank did not want to "repeat the reckless lending" before the crunch. "People are still waiting for demand to be more convincing before they take on more risk," he said.
This week, Lloyds Banking Group posted a £1.6bn profit after a £4bn loss in the first half of the previous year. HSBC doubled first-half profits to £7.1bn on Monday, followed by mixed results at Northern Rock.
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