Lord Younger, the former Tory cabinet minister who chairs the bank, warned that provisions would stay high over the next year.
But a potentially serious concern for bank shareholders eased when Royal disclosed that a claim for damages by the liquidators of Wallace Smith Trust had been slashed from pounds 418m to a maximum of pounds 108m.
The liquidators claim that Royal paid money to Wallace Smith Holdings that should have gone to the trust company. But the liquidators have agreed that the loss alleged to have been suffered is less than the actual payments. They have told Royal the claim will not exceed the pounds 108m deficit of Wallace Smith Trust.
Royal said it would still vigorously contest the claim, and it has made no provision for damages.
Lord Younger said the group's profits were disappointing, but the board maintained the full- year dividend at 8.8p, though it is not covered by profits.
Operating profits rose 15 per cent, which Lord Younger said reflected strong underlying performance. But this was before bad debt provisions of pounds 401m, a rise of 24 per cent, across a broad spectrum of customers. The biggest single bad debt was pounds 18.5m.
Operating profit included pounds 21m, after exceptional items, from the Direct Line insurance business, whose founder, Peter Wood, was paid a pounds 6m bonus. Premium income increased 71 per cent over the year.
Branch banking lost pounds 10.9m, while the merchant bank Charterhouse, which is being sold, made pounds 23.1m, slightly more than last year. Royal is to keep a stake in Charterhouse when negotiations with a Franco-German consortium are concluded in a few weeks.
Lord Younger said the continuing effects of the recession had masked the benefits of restructuring at the bank, under what it calls the Columbus programme. Last month, Royal announced that 3,500 jobs were to go by 1997.
Royal said the banking ombudsman had not decided a single case against the bank.
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