RBS Posts First Half-Year Profit in Three Years -- 2nd Update
August 04 2017 - 5:19AM
Dow Jones News
By Max Colchester
LONDON-- Royal Bank of Scotland Group PLC swung to a net profit
for the first six months of 2017, bolstered by an unexpected
revenue driver: its beleaguered investment banking division.
The 71% U.K. government-owned bank's bottom line for the
half-year was in the black for the first time in three years,
helped by increasing revenue and a fall in one-off costs linked to
its slow march from taxpayer ownership.
A surprisingly strong performer was its NatWest Markets
investment banking unit, where revenues increased by 14% in the
first six months of 2017 due to strong fixed-income trading. RBS
has spent years slashing its trading desks to refocus on its
British retail business.
The lender said Friday it would repurpose its Dutch banking
license so that its investment banking division could service
customers in mainland Europe after Brexit. The bank expects less
than 150 roles to move overseas. The cost of the move will be in
the low tens of millions of pounds.
Overall revenue came in at GBP6.91 billion, compared with
GBP6.06 billion ($7.96 billion) the year before. The bank made a
net profit of GBP939 million, compared with a GBP2.05 billion loss
in the first half of 2016, when it paid the British government over
GBP1 billion to regain the right to pay dividends.
The bank said restructuring costs continued to rise in the first
six months of 2017, as it pursues a multiyear turnaround to shed
businesses and refocus on the U.K.
Analysts at UBS hailed "strong underlying results," which pushed
shares up 3.4% in morning trading.
Litigation costs came in at GBP400 million, as the bank paid to
settle disputes with U.S. authorities and a class action by
shareholders.
Despite improving returns, the lender will likely make its ninth
consecutive full-year loss in 2017, hit by costs linked to fines
and winding down its "bad" bank. However, Chief Executive Ross
McEwan said the bank was "clear and closer" to making a profit,
which it aims to do on a full-year basis in 2018, a decade after
its taxpayer bailout.
In recent months, the bank has made strides to clean up some of
the legacy issues hanging over it. In July, it agreed to pay $5.5
billion to the U.S. Federal Housing Finance Agency to settle a
probe into its sale of toxic mortgage-backed securities in the run
up to the global financial crisis. The bank also reached a
preliminary agreement with the European Commission to spend over $1
billion to boost competition in the U.K. The deal came after RBS
was found in breach of European competition rules following its
bailout.
Three major hurdles remain before the bank returns cash to
shareholders: RBS needs to convincingly pass a balance sheet stress
test; it needs to settle criminal and civil investigations with the
U.S. Justice Department over its role in packaging subprime
mortgages and it needs to make a profit. The bank says it still
hasn't had an update from the Justice Department on when a
settlement might come.
Write to Max Colchester at max.colchester@wsj.com
(END) Dow Jones Newswires
August 04, 2017 05:04 ET (09:04 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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