Part-nationalised Royal Bank of Scotland today revealed a sharp drop in operating profits for the last quarter as the Treasury announced it would not split the organisation into so-called good and bad banks.
The 81 per cent state-owned lender avoided a full carve-up following a four-month review into its future.
Rather than split RBS, toxic assets totalling £38 billion will instead be ring-fenced in an internal “bad bank”, in a move intended to improve lending to businesses.
But the bank’s operating profits for the third quarter, to the end of September, more than halved on the same period last year.
They had been forecast to come in at around £800 million, but the figure was £438m, down from £909m a year ago.
Despite the drop, RBS chief executive Ross McEwan hailed the seventh consecutive quarter of operating profits as “a good result” and said the bank was beginning to see positive signs in its core business, particularly its retail operations.
However, he said a review of what RBS should look like in the future would report in February and did not rule out further job losses.
Mr McEwan said the plan to ring-fence bad debts would “create a bank that can reward the faith of UK taxpayers and all our investors”.
He said: “Today we are resetting the bank for the future and trying to get rid of the distractions we have had for quite some time about what happens to these loans we should probably never have put on the books and focus on the other 90 per cent of our assets.”
He said the bank had successfully reduced its bad debts from £250 billion. The new arrangement is seen as a way of getting rid of the remaining toxic assets at a faster rate.
Mr McEwan said: “We are taking them out of the business, putting them in a separate division and focusing our attention on the other 90 per cent of our assets.”
Chancellor George Osborne said RBS’s new focus will see it being a “boost to the British economy instead of a burden”.
He said: “Under this new direction RBS will deal decisively with the problems of the past by separating out the good from the bad, and putting the bad loans in a bad bank.
“Our independent analysis shows that the bad bank should be an internal one, funded by RBS, rather than an external one funded by the taxpayer.”
Mr Osborne had appointed investment bank Rothschild during the summer to weigh up the case for a good/bad bank split, but the plan faced a barrage of opposition from shareholders.
Alongside the new internal bad bank, RBS will also bring forward the disposal of its US retail bank, Citizens and further shrink its investment banking business.
The Bank of England backed the decision not to split RBS. It said it welcomed “the development of a more focused strategy for RBS and the commitments of the Board to specific actions that will bolster its capital position in the next three years.”