RBS to be back in black after one-off gains

Published on Saturday 1 August 2009 14:15

ROYAL Bank of Scotland is expected to return to the black when it reports its half-year figures this week, as one-off gains offset continuing underlying losses thought to run to at least several hundreds of millions of pounds.

Many in the City expect the exceptional gains to result in break-even or relatively modest profit when RBS reports on Friday, compared with the 692 million loss the bank reported this time last year, the first loss in its 41-year history as a publicly quoted company.

RBS will conclude a week of interim results from all four big banks, with Lloyds Banking Group tipped to show that bad debts have risen to about 13 billion due to heavy losses on HBOS's property-led investments. But accounting measures are likely to allow Lloyds also to show a move into profit. Barclays and HSBC are expected to show more positive returns, with particular gains for Barclays in investment banking and for HSBC in Asia.

The City will be watching for clues of stability in the state-controlled banks that will allow the UK government to move forward in its plan to sell its huge holdings. RBS will show exceptional gains that include 2bn from selling the bank's stakes in Bank of China and Spanish insurer Linea Directa. It also made an estimated 4.5bn accounting gain from buying back some of its debt in the bond markets earlier this year.

Some in the City believe such items will mean a headline profit for the group of between 2bn and 3bn. But one said: "These figures are all over the place, honestly. Because of the opaqueness of RBS given the massive restructuring, talk of even a 1bn reported profit is way too optimistic, while 2bn or 3bn is just outlandish."

However, stripping out exceptional items, many analysts believe the bank will make an underlying loss of between 600m and 1bn, with Credit Suisse among the most pessimistic, predicting a 2.4bn first-half loss.

Simon Willis at NCB Stockbrokers, who predicts an underlying loss at RBS of 1.6bn, said: "The underlying trading results will be flattered by a very strong revenue and profits performance at RBS's global banking and markets division.

"Volatility is good for capital markets and there was huge volatility in global capital markets in January and February this year because of capital adequacy issues."

RBS also suffered from huge credit market writedowns in the first half of 2008. "They are likely to be at a much lower level this time," Willis said.

RBS, 70 per cent of which is currently owned by the taxpayer, is still agreeing terms over placing 325bn of its own toxic loans into the Treasury's Asset Protection Scheme, which could boost the government's stake in the bank to 85 per cent.

It is understood chief executive Stephen Hester will break down Friday's presentation into the performance of what he has deemed "core" and "non-core" assets.

The latter include RBS's Asian retail and commercial lending business, where a deal for Standard Chartered to take over the Chinese, Indian, and Malaysian operations is believed to be close.