LONDON – Royal Bank of Scotland said on Friday that its second-quarter pretax profit nearly doubled as the bank benefited from a decline in loan impairments. The results were better than expected and prompted the bank to issue them a week early.
But the bank, which is based in Edinburgh, warned that litigation and other legacy issues could drag down its results in future quarters.
On a pretax basis, the bank, which is 81 percent owned by the British government, posted a profit of £1.01 billion for the second quarter ended June 30, compared with £548 million in the second quarter of 2013.
R.B.S. shares rose more than 14 percent in morning trading in London after the results were released.
The bank said that its preliminary net profit was 230 million pounds, or about $391 million. That compares with a profit of £142 million in the same period last year.
R.B.S. said it announced its results early because the results were significantly better than the market was anticipating. The lender plans to release its full results on Aug. 1.
In the quarter, R.B.S. was able to release £93 million that it had set aside for bad loans. In the same quarter last year, the company posted loan impairments of £1.12 billion.
"Let me sound a note of caution," Ross McEwan, the R.B.S. chief executive, said in a statement. "We are actively managing down a slate of significant legacy issues. This includes significant conduct and litigation issues that will hit our profits in the months and years to come. I'm pleased we've had two good quarters, but no one should get ahead of themselves here — there are bumps in the road ahead of us."
In the second quarter, the company recorded litigation and conduct costs of £250 million, including a £150 million provision related to payment protection insurance, a product that has cost British banks billions of pounds to compensate consumers who were wrongly sold the loan insurance.
The company said it expected higher litigation and conduct costs in the coming year.
The improving profit outlook was another positive sign for Mr. McEwan as he tries to change the bank's focus from being a global investment bank to becoming a smaller institution concentrated on the British market.
Net interest income – the measure of what a bank earns on its lending after deducting what it pays out on deposits and other liabilities – rose slightly to £2.79 billion in the second quarter. Over all, revenue was down 10 percent to £4.92 billion.
Operating expenses were up about 9 percent in the quarter to £3.7 billion, and the bank said that it remained on track to reduce its costs by £1 billion this year.
As part of its restructuring, the lender is preparing to spin off its Citizens Financial Group banking business in the United States and its Williams & Glyn branch network in Britain.
The bank's common equity Tier 1 capital, a measure of its ability to absorb losses, was 10.1 percent at the end of the first quarter, up from 8.6 percent at the end of 2013.
European banks are required to have a minimum of 4 percent common equity Tier 1 capital under the so-called Basel III regulatory scheme, but larger banks are required to maintain a higher minimum capital level, which is set by regulators.
source : http://rss.nytimes.com/c/34625/f/640316/s/3cda3c4c/sc/24/l/0Ldealbook0Bnytimes0N0C20A140C0A70C250Cr0Eb0Es0Eprofit0Ebeats0Eexpectations0Eas0Eresults0Eare0Ereported0Eearly0C0Dpartner0Frss0Gemc0Frss/story01.htm
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