Shares in taxpayer-owned Royal Bank of Scotland hit an 11-month high today as it said a much-improved economy, especially in Ireland, meant it could make lower provisions for bad debts.
The bank, which is 80 per cent owned by the taxpayer following its £45 billion bailout, issued an unscheduled trading update today saying it “expects to significantly outperform” its previous guidance for bad debt provisions of £1 billion this year.
This was its third positive upgrade this year.
The latest one comes from its so-called “bad bank”, where losses will be £500 million lower than previously expected, and Ulster Bank, with £300 million less. RBS said this was due both to economic improvements in the UK and Ireland and improvements in assets prices, notably property.
Chief executive Ross McEwan said the bank had seen a “decisive turn in the economic cycle”. But he repeated his constant caution that “previously disclosed uncertainties remain, particularly relating to conduct and litigation matters”.
RBS is one of six banks expected to face hefty penalties shortly from the Financial Conduct Authority and international regulators over its role in alleged foreign exchange benchmark rigging. It was fined a total of £390 million for manipulating the key Libor interest rate last year.
The bank also cautioned: “Corporate and institutional banking revenues have been weaker than anticipated in the third quarter.” McEwan is already shrinking what are largely investment banking activities in this area of the bank, but the summer saw a general fall in financial market revenues across the world.
The £500 million writebacks at RBS Capital Resolution (RCR), or the bad bank, could be just the start, the bank said. It added: “The potential exists, if market conditions remain favourable, for RCR to incur limited future impairments and disposal losses, and an accelerated timetable to achieve its wind-down goals.”
Likewise, improvements in Ulster could mean further releases of provisions already made for bad debts, which across the bank totalled £8 billion at the start of this year. With the good news far outweighing the bad, RBS shares rose 13.7p, or nearly 4 per cent, to 375.1p — their highest since October 2013.Reuse content