THE Royal Bank of Scotland (RBS) stunned the market yesterday when it announced a doubling in pre-tax profits of £2.65 billion for the first half of the year on the back of the resurgent economy.
On the stock market, shares in the bank surged 15 per cent as RBS put out its half-time results a week early because they were “significantly stronger” – about £1bn higher – than market expectations. It compared with a profit of £1.37bn in the same period of 2013.
Yesterday Sir Philip Hampton, chairman of the state-owned lender, told reporters: “We decided this week that they [the results] were price-sensitive because the divergence [with expectations] was so significant. We did not think it was appropriate to sit on these results for another week.”
Ross McEwan, the bank’s New Zealand-born chief executive, who succeeded Stephen Hester last autumn, said the results showed what a solid underlying bank RBS was beneath all the controversy about financial bailouts, toxic assets, mis-selling scandals and taxpayer ownership.
But he sounded a note of caution. “We are 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,” McEwan said.
“I’m pleased we’ve had two good quarters, but no-one should get ahead of themselves – there are bumps in the road ahead of us.”
As if to emphasise that fact, RBS took another £150 million write-down for payment protection insurance (PPI) mis-selling on top of the £3.1bn it had already set aside for the scandal.
There was also an extra £100m hit for interest rate swap mis-selling to small and medium-sized businesses (SMEs). It meant that second-quarter profits to end-June were 38 per cent lower at £1.01bn, but still above City expectations.
Last year RBS was also fined £390m for its part in the rigging of the Libor benchmark interest rate, and is one of several banks being investigated over alleged manipulation of foreign-exchange markets.
It also faces claims relating to the sale of mortgage-backed securities, and pending legal actions by shareholder groups alleging they were misled in its £12bn rights issue in 2008.
McEwan refused to be drawn on whether the impressive six-monthly profit rebound meant a likely earlier return to private ownership through a sell-off of the 81 per cent stake in the bank the state got through its £45bn bailout in the 2008 financial crash.
He said his job was to make RBS a simpler, smaller, more understandable bank that did right by customers to give the government options to sell down the stake when it wanted.
RBS, whose interim operating profits jumped to £2.6bn from £708m, said it had benefited from a recovering UK economy for both households and businesses, with losses on bad debts falling £1.8bn to £269m.
Gross new lending to small businesses was up 31 per cent at £5bn, while SME applications were 11 per cent up.
McEwan added: “It shows we can deliver good news when we focus on the customer franchise. We are just getting the feeling that things are moving again.”
Shares in RBS closed up 35.4p, or 10.7 per cent, at 364.5p.