Royal Bank of Scotland Reports Profit Uplift

on Nov 2, 2012

Royal Bank of Scotland (LON:RBS) published its third quarter financial statement, which shows the bank managed to improve its operating profit to £1,047 million from £650 million in Q2 and £2 million in Q3 2011, with Core operating profit of £1,63 billion – up 8 percent from Q2 and 67 percent from Q3 2011.

The bank has been saddled by pay-outs for its mis-sold payment protection insurance (PPI) packages, investigations into the London Interbank Offered Rate (LIBOR) rigging and alleged breaching of Iran sanctions. After taking out credit adjustments of £1,45 billion, PPI provisions of £400 million and other items of £451 million, the bank reported a net loss for the quarter of £1.38 billion.

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Chairman Phillip Hampton said in September that RBS is preparing for the UK government to start disposing of its 81 percent stake in the bank, even though it’s probably going to sell it at a loss. The optimism of Mr Hampton stems from the recent exit by RBS from the government’s Asset Protection Scheme (APS), which exists to insure its riskiest loans. It looks like British taxpayers will have to swallow a £20 billion loss after the government pumped £45 billion in the bank to bail it out during the 2008 financial crisis.

CEO Stephen Hester’s comment in today’s Interim Management Statement:
!m[CEO Stephen Hester Predicts A Lot More “Heavy Lifting” Lying Ahead of the Bank](/uploads/story/705/thumbs/pic1_inline.png)“The extraordinary challenges which RBS faced following the financial crisis are being worked through successfully. The five year restructuring Plan is now in its later stages with important work still to do, including an emphasis on dealing with reputational issues now that the Bank’s safety and soundness has advanced so well. We passed two other important milestones in October with our exit from the APS and a very encouraging flotation of Direct Line Group and are within touching distance of matching every £1 of lending with a £1 of customer deposits.”

RBS has had good and bad fortune in the past month. It managed to sell 34.7 percent of the shares in its insurance arm Direct Line (LON:DLGD) for £911 million but days later failed to complete a £1.65 billion deal with Spain’s Santander for the purchase of 316 RBS branches. As a result RBS may have to ask the European regulators for an extension to complete the sale of its branches, which was supposed to be achieved by 2013.

**New CIO**
The bank recently appointed Scott Marcar to replace retiring Stephen Norman as chief investment officer of the Markets & International Banking division. Mr Marcar told CIO UK that his breadth of experience in fixed income technologies and risk management, together with posting overseas, such as US, Africa and Latin America had made him suitable for the job. He said his main area of focus will be reacting to the disruption of the banking sector as a whole, and in the technology area. “The next few years will be around less tech that needs to do more,” the newly appointed CIO opined. “When the company was in a revenue chasing model, the technology had to follow that line. Where capital is more constrained we need to take the complexity out of the environment.”
**08.11 AM Update:**
RBS shares jumped nearly 2 percent to £2.93 a share as the London Stock exchange opened but minutes later lost ground to £2.8787.


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