RBS reports £826m return to profit in first quarter

Chairman Sir Philip Hampton said the group’s balance sheet was “substantially fixed” and the lender is nearing a position where the UK government could start trying to offload its 82 per cent stake.

He said: “We could write a prospectus with the government enabling the government to start selling shares from, let’s say, the middle of 2014. It could be earlier – that’s a matter for the government – but certainly we think the recovery process will be substantially complete in about a year or so.”

RBS, 82 per cent owned by the taxpayer, posted a pre-tax profit of £826 million for the first three months of the year, compared with a loss of £1.5 billion a year ago. Analysts had forecast a profit of about £800m.

Chief executive Stephen Hester said: Chief executive Stephen Hester said: “These results show pleasing progress in delivering a strong and valuable RBS for all our stakeholders. We expect to substantially complete the bank’s restructuring phase during 2014.

“We are seeing the start of a pick-up in loan demand and have a strong surplus of funds ready and available to fully support economic recovery. Across the group we are working hard to improve what we do for customers and to better position the bank for future growth.”

Hester said the bank had not held “explicit discussions” yet with the Treasury over the timing or details of a return to the private sector.

He added that, while the process of selling down the stake could take a number of years, he was hopeful the taxpayer would eventually receive a higher price than that paid under the £45bn bailout at the height of the financial crisis.

“A privatisation would be a terrific thing for the country psychologically and taxpayer money would be freed up for other uses,” he said.

But today’s figures also showed the difficulties still facing RBS, as its core operating profit fell to £1.3bn, from £1.6bn a year earlier, after its investment banking division saw earnings more than halve to £294m.

Shares in the group fell almost 4 per cent in early trading and Shore Capital analysts said the results for the core business were “disappointing”.

Pre-tax profit figures were flattered by the absence of a large bill for payment protection insurance (PPI) mis-selling claims, as well as the lack of a hit from accounting charges for changes in the value of its own debt, which combined to send RBS into the red by £1.5bn in the first quarter of 2012.

Richard Hunter, head of equities at Hargreaves Lansdown, said: “The shares have been slammed in early trade as a headline profit figure masked an operating profit which was strongly shy of expectations.

“The update does, however, display some signs of progress, with another decrease in impairments accompanying an improvement to the capital cushion, a pick-up in loan demand implying some early signs of economic recovery and a further shift towards the smaller and more focused bank it wishes to become.”