RBS shares soar after it reveals drop in bad debts

Bank’s chief executive hails ‘decisive turn in economic cycle’

Shares in taxpayer-owned Royal Bank of Scotland hit an 11-month high yesterday as it said a much-improved economy, especially in Ireland, meant it could make lower provisions for bad debts.

The bank, 80 per cent owned by the taxpayer following its bailout, issued an unscheduled trading update saying it “expects to significantly outperform” its previous guidance for bad debt provisions of £1bn this year. This was its third positive upgrade this year.

The latest one comes from its so-called “bad bank”, with writebacks of £500m, and Ulster Bank with another £300m. RBS said this was due both to economic improvements in the UK and Ireland and consequent improvements in asset prices, notably property. The chief executive, Ross McEwan, said the bank had seen a “decisive turn in the economic cycle”. But he repeated 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 £390m for manipulating Libor interest rates last year.

The bank also cautioned: “Corporate and institutional banking revenues have been weaker than anticipated in the third quarter.” McEwan is already shrinking investment banking activities, but the summer saw a general fall in financial market revenues across the world.

The £500m writebacks at RBS Capital Resolution (RCR), or the bad bank, could mean “an accelerated time-table to achieve its wind-down goals.”

Shares in RBS rose 6.8p to 368.2p. The Treasury paid an average 500p a share in the 2008 and 2009 bailouts.

The ill-fated hbos deal: Lloyds investors to sue

Investors in Lloyds Bank at the time of its ill-fated takeover of HBOS in 2008 have been given the go-ahead to bring a class action against it and its former directors, claiming that they lost more than £6bn.

The High Court has ruled that a group action can be pursued. However, solicitors Harcus Sinclair have just over a month to recruit as many of the 800,000 shareholders at the time of the deal as they can to join the action. The action is currently being brought by only 208 investors.

The deadline, because it is six years since the takeover vote, is 12 November. The case is being brought against former directors – ex-chairman Sir Victor Blank, ex-chief executive Eric Daniels, Timothy Tookey, Helen Weir and George Truett Tate – and against Lloyds Banking Group. The action group calculates that shareholders lost between 86p and 120p a share as a result of the takeover and the later £45bn taxpayer bailout.