Resurgent RBS is ready for a privatisation to lift spirits

Bailed-out bank is confident the taxpayer will see a profit in sell-off

Royal Bank of Scotland has returned to profit and says it will be ready for a privatisation next year.

A pre-election sell-off involving a public whose funds have kept the bank from bankruptcy could provide a much-needed shot in the arm for an embattled Government that has just taken a drubbing at the polls.

It would also provide a boost for RBS, which yesterday reported an £826m pre-tax profit for the first three months of 2013, the first quarterly profit since the third quarter of 2011.

The bank is desperate to be free from Government interference as it battles back to full health. Some £45bn of state funds has been poured into RBS.

Chief executive Stephen Hester said a share sale might have to be conducted in several tranches given the size of the Government stake — it holds 81 per cent of the shares — and it might have to take a loss at first.

But Mr Hester said he was “confident” that the taxpayer would be in profit “at the end of the process”.

The City took a sharply different view, marking the shares down with the bank still facing a mountain to climb if the Government wants to sell at a price even close to its 500p buy-in. RBS fell 17.5p to 289.8p.

Analysts remain sceptical of the bank’s attractions to private investors and core operating profits of £1.3bn were well below last year’s £1.6bn.

While retail and commercial bank profits rose, and bad debts fell, the investment bank’s earnings were sharply lower as RBS continues to shrink what remains the most controversial part of the business.

An upbeat Mr Hester told the Independent that despite the difficult economic situation, RBS is now in a position where he is confident that it won’t be knocked off course.

“I think we are enough progressed in the clean-up job that the plausible economic scenarios will present bumps in the road rather than knocking us off course,” he said.

“I don’t worry so much about completing the clean-up. I think we will do it.

“The issue now is, can we turn a normal bank into a really good bank?”

Mr Hester knows that for the bank to really start to motor, however, he needs the economy to pick up, and that remains a work in progress.

Ian Gordon, from Investec, spoke for the sceptics when he said: “We regard the RBS results as profoundly weak. Core UK retail and UK corporate still contribute negative loan growth.

“Markets division was awful with a 40 per cent revenue hit (over the first quarter of 2012) without adequate relief on the cost line. In truth, we regard all the noise over the past 48 hours around the so-called ‘privatisation’ of Lloyds and RBS as a complete smokescreen.”

A key driver for a sell-off of RBS could be a return to dividend payments. That would require buying off the Government’s “dividend blocker” with European Union agreement when the  regulators are sufficiently confident that the bank holds enough capital to protect it from economic shocks.

The bank said its loan-to-deposit ratio had improved to 99 per cent. It hopes its core tier one capital ratio under banking supervisors’ Basel III agreement will be above 10 per cent some time in 2014.

The bank still has work to do, including the sale of just over 300 branches under the Williams & Glyn’s brand.

This sale was demanded by EU regulators as the price for the state support the bank has received.

RBS also has to dispose of its 48 per cent stake in the insurer Direct Line and potentially a partial sell-off of its United States retail bank Citizens.

Mr Hester said a pre-flotation sale of part of Williams & Glyn’s could happen as soon as this summer but a full sell-off would not happen until 2015.

Start your day with The Independent, sign up for daily news emails
ebooksAn unforgettable anthology of contemporary reportage
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Digital Optimisation Executive - Marketing

£30000 - £35000 per annum: Recruitment Genius: The UK's fastest growing, multi...

Recruitment Genius: Financial Reporting Manager

£70000 - £90000 per annum: Recruitment Genius: A Financial Reporting Manager i...

Recruitment Genius: Payments Operations Assistant

£23000 - £25000 per annum: Recruitment Genius: They win lots of awards for the...

Recruitment Genius: Telephone Debt Negotiator

£13500 - £20000 per annum: Recruitment Genius: This nationwide enforcement com...

Day In a Page

On your feet! Spending at least two hours a day standing reduces the risk of heart attacks, cancer and diabetes, according to new research

On your feet!

Spending half the day standing 'reduces risk of heart attacks and cancer'
Liverpool close in on Milner signing

Liverpool close in on Milner signing

Reds baulk at Christian Benteke £32.5m release clause
With scores of surgeries closing, what hope is there for the David Cameron's promise of 5,000 more GPs and a 24/7 NHS?

The big NHS question

Why are there so few new GPs when so many want to study medicine?
Big knickers are back: Thongs ain't what they used to be

Thongs ain't what they used to be

Big knickers are back
Thurston Moore interview

Thurston Moore interview

On living in London, Sonic Youth and musical memoirs
In full bloom

In full bloom

Floral print womenswear
From leading man to Elephant Man, Bradley Cooper is terrific

From leading man to Elephant Man

Bradley Cooper is terrific
In this the person to restore our trust in the banks?

In this the person to restore our trust in the banks?

Dame Colette Bowe - interview
When do the creative juices dry up?

When do the creative juices dry up?

David Lodge thinks he knows
The 'Cher moment' happening across fashion just now

Fashion's Cher moment

Ageing beauty will always be more classy than all that booty
Thousands of teenage girls enduring debilitating illnesses after routine school cancer vaccination

Health fears over school cancer jab

Shock new Freedom of Information figures show how thousands of girls have suffered serious symptoms after routine HPV injection
Fifa President Sepp Blatter warns his opponents: 'I forgive everyone, but I don't forget'

'I forgive everyone, but I don't forget'

Fifa president Sepp Blatter issues defiant warning to opponents
Extreme summer temperatures will soon cause deaths of up to 1,700 more Britons a year, says government report

Weather warning

Extreme summer temperatures will soon cause deaths of up to 1,700 more Britons a year, says government report
LSD: Speaking to volunteer users of the drug as trials get underway to see if it cures depression and addiction

High hopes for LSD

Meet the volunteer users helping to see if it cures depression and addiction
German soldier who died fighting for UK in Battle of Waterloo should be removed from museum display and given dignified funeral, say historians

Saving Private Brandt

A Belgian museum's display of the skeleton of a soldier killed at Waterloo prompts calls for him to be given a dignified funeral