RBS posts better than expected third quarter profit


Royal Bank of Scotland

Royal Bank of Scotland (RBS.L) reported an operating profit of 871 million pounds in the third quarter, beating analysts’ expectations as it grew income by 6 percent from the same period a year ago while reducing costs. 

The state-owned bank, which was rescued by a 45.5 billion pound bailout at the height of the 2008 financial crisis, reported its third consecutive quarter of profitability as it emerges from restructuring.

But RBS still forecasts an overall loss this year, due to an expected multi-billion pound settlement with the U.S. Department of Justice over its alleged mis-selling of mortgage-backed securities during the financial crisis.

RBS gave no update on the progress towards a settlement but said it continues to expect one will be reached this year despite uncertainty on whether formal negotiations on the matter have even started.

Ross McEwan, chief executive, said the bank remains on track to hit its financial targets. This includes a return to profit in 2018 after more than a decade of losses.

“Our strategy to deliver a simpler, safer, customer-focussed bank, is working. We have grown income, reduced costs, made better use of our capital and continued to make progress on our legacy conduct issues,” he said.

Profit fell in RBS’s investment banking unit Natwest Markets, in line with its U.S. and British peers that have reported weak trading revenues for the third quarter.

The bank said it had reduced costs by 708 million pounds over the year to date, meaning it is on track to hit its target of 750 million pounds of cuts for the year.

The bank also faces the possibility of further action from Britain’s financial watchdog over the treatment of small businesses in its Global Restructuring Group (GRG) during and after the financial crisis.

The Financial Conduct Authority on Monday published a detailed summary of a report into the unit, after customers accused the GRG of pushing ailing firms into bankruptcy to pick up their assets on the cheap.

 The report outlined numerous failings and the FCA said it was investigating further, raising the possibility of further official action over an issue McEwan had hoped to settle via a 400 million pound compensation scheme.

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