News

Pre-tax profits of £1.6bn for three months to the end of March have been reported by Royal Bank of Scotland (RBS). This figure is almost double the profit recorded in the same quarter a year earlier.

Although, the figure shows encouraging profits, the bank warned it faced a “tough year” ahead, due to the cost of reconstructing the business and expected regulatory fines.

The results mark a return to profit for the first time since last summer.

But RBS expects more fines and damages for mortgage mis-selling in the US.

Operating profit was £1.5bn, up from £746m a year earlier, the bank added.

RBS chief executive Ross McEwan said the figures showed the bank was in a “steady state.”

He promised RBS would be a bank “that does a great job for customers while delivering good returns for our shareholders.”

“But we still have a lot of work to do and plenty of issues from the past to reckon with” he added.

‘Expected losses’

It has been cautioned that the bank; which remains 80% taxpayer-owned, is expected to make a loss for the year despite the profit in the first quarter.

Aside from fines from Legacy issues, the bank expects considerable costs from restructuring as it slims down from seven divisions to three.

Its decision in November to hive off toxic assets into a bad bank at a cost of £4.5bn, which led to lower impairment charges, is said to have benefited the bank.

But better cost control has also benefited the bank. A cost-to-income ratio of 66%, down from 73% a year earlier was recorded. The bank also has further aims to decrease this ratio to 55% by 2015 and 50% in 2020.

The year ahead is likely to be dogged by fines relating to legacy issues, particularly from abroad.

Due to its mis-selling of mortgage bonds in the US, RBS has made a £1.9bn provision for fines and damages due to this issue. But the bank fears the fines could exceed this amount.

RBS is among several major banks assisting regulations around the world investigating allegations of collusion and price-rigging in the global currency market.

Richard Hunter, head of equalities at Hargreaves Lansdown Stockbrokers, said the banks results appeared to “represent the calm before the storm.”

He added “The bank is still in the midst of dealing with its legacy issues, and he warned that there will be a considerable rise in costs as the year progresses, driven both by the restructure and the possibility of further regulatory fines.”

“RBS is pursuing a similar route to Lloyds in preparing to simplify and focus its operations, but Lloyds is much further down the road.”

‘Dividends’

In April, RBS agreed with the Treasury to cancel a deal which stopped it paying dividends to private shareholders.

The deal was seen as a first step towards privatisation.

The bank said it would seek permission from its shareholders at its annual general meeting (AGM) on 28 June to pay £1.5bn to cancel the so-called dividend access share (DAS), £320m of it this year and the rest by the beginning of 2016.

The block on dividend payments to private investors was created in 2009 when the government bailed out the bank for a second time at a cost to the tax payer of £25.5bn, taking the total cost of the RBS bailout to £45.5bn.