RBS reports strong earnings putting it on track for first annual profit since 2007

The bank, which is still state-owned after having been bailed out for £45.5bn during the 2008 financial crisis, has now recorded a profit for each quarter of 2017

RBS posted a £871m operating profit for the third quarter of its financial year (Getty)

Royal Bank of Scotland beat analyst forecasts by posting an £871m operating profit for the third quarter of its financial year, helped by cost-cutting measures.

The bank, which is still state-owned after having been bailed out for £45.5bn during the 2008 financial crisis, has now recorded a profit for each quarter of 2017, putting it on track to record its first annual profit since 2007 by next year. It still forecasts an overall loss for this year though.

On Friday it said that its common equity Tier 1 ratio, an important measure of a bank’s financial resilience, had also risen by more than expected during the three month period, to 15.5 per cent. At the end of June, the ratio had stood at 14.8 per cent, up from 13.4 per cent in December last year.

“Our core bank continues to generate strong profits and we remain on track to hit our financial targets,” chief executive Ross McEwan said.

The bank also said that it had managed to slash costs by £708m so far in the year, putting it on track to hit its target of £750m pounds of cuts for the whole financial year. But conduct charges dating back to the financial crisis continue to plague the bank.

An anticipated settlement with the US Department of Justice over RBS’ alleged mis-selling of mortgage-backed securities during the crisis could still be as high as £12bn, according to Reuters. RBS has already set aside more than half of that figure as a provision for it.

Mr McEwan told reporters on Friday that while there had been no “substantial discussions” with, or an opening offer from, the DOJ, he is hopeful that a settlement would be reached this year.

A settlement is widely seen as a precondition for the Government to offload its 71 per cent stake in RBS and for the bank to start paying investor dividends again.

Separately on Friday, RBS also said that it had agreed to pay $35m and enter into a non-prosecution agreement with the US Department of Justice to settle a probe of traders accused of defrauding customers on bond prices.

The settlement had been announced on Thursday by an Attorney for the District of Connecticut.

And RBS could also still face action from the UK’s financial watchdog over its treatment of small businesses by its Global Restructuring Group (GRG), during and after the financial crisis.

On Monday the Financial Conduct Authority published a summary of a report into GRG and concluded that the bank had failed to support small companies and didn’t adopt adequate procedures concerning its relationship with customers.