RBS doubles profits and weighs purchase: Royal Bank's Direct Line insurance subsidiary offers huge growth potential

ROYAL Bank of Scotland more than doubled pre-tax profits in the six months to 31 March to pounds 210m - and said it would consider buying a building society 'at the right time, in the right place'.

The City's attention was focused on Direct Line, the bank's booming telephone-based general insurance subsidiary, which nearly tripled profits to pounds 41m. Direct Line is seen as giving RBS enormous growth potential in the otherwise mature clearing bank sector.

Overall, RBS provisions for bad debts fell pounds 71m to pounds 111m. Dr George Mathewson, chief executive, said the only blot on the landscape was the small business sector, where bad debts under pounds 100,000 were still a problem.

RBS raised its interim payout from 3p to 4p and said the full-year dividend would be at least 12p, compared with 11p previously. Earnings per share more than trebled from 4.2p to 13.5p.

Lord Younger of Prestwick, chairman, said: 'Our three businesses - UK banking, Direct Line and Citizens - have all made an excellent start to the year. Our profits have risen sharply and we are positioned to benefit from both continued economic recovery and the actions of our management team.'

Despite this, the share price fell 12.5p to 428p after a strong performance in recent months.

RBS net interest income rose 11 per cent to pounds 469m, other income rose 24 per cent to pounds 334m and general insurance premiums, less claims, more than doubled to pounds 67m. Costs rose 16 per cent to pounds 537m due mainly to expansion by Direct Line and acquisitions by Citizens, the US subsidiary.

Branch banking profits increased sharply from a low base of pounds 6m to pounds 66m. The mortgage book grew twice as fast as in last year's first half - up a quarter to pounds 900m, funded mainly by substantial growth in personal savings, up 21 per cent, or pounds 840m.

Dr Mathewson said he wanted to see the mortgage book maintaining this rate of expansion.

Bottom Line, page 38

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