RBS holds back from buying building society

Royal Bank of Scotland said yesterday it remained interested in buying a building society to increase its exposure to retail customers south of the border but said the prices implied by the recent flotation of Alliance & Leicester ruled out an imminent move.

Announcing record interim profits, George Mathewson, chief executive, also shut the door on the prospect of a share buy-back, saying the bank had no shortage of investment opportunities. He poured cold water on recent speculation that the bank might itself fall prey to a bid from a bigger financial group such as HSBC or Halifax. Its shares have risen sharply in recent weeks on market whispers, closing yesterday at 585p, down 0.5p.

Despite rumours last month that Direct Line, the bank's telephone insurance subsidiary, had plunged into the red in the six months to March, the division recorded a small rise in profits amid continuing fierce competition in motor premiums. Mr Mathewson said he was hopeful the corner had been turned and rates, on the slide for more than three years, would soon rise.

In the half year to Marchgroup profits amounted to pounds 369m, up from pounds 301m a year ago. The bank stuck to its traditional practice of paying an interim dividend worth a third of last year's full-year payout, or 6.2p a share.

The biggest contributor was the UK banking arm, where cost control and a good performance from corporate banking helped profits jump from pounds 246m to pounds 306m. Mr Mathewson warned, however, that a four-point fall in the ratio of the division's costs to its income would not be sustained into the second half.

The pounds 8m (pounds 5m) return from Direct Line scotched rumours that the once highly successful telephone insurance business was in serious trouble. But returns remained insignificant compared with the record profit two years ago of pounds 112m.

Investment column, page 22