The Royal Bank of Scotland is set to show further evidence of its underlying trading recovery this week, by striking an operating profit of about £1 billion in the second trading quarter of 2017.
The bank, still 72 per cent owned by the taxpayer, is expected to say that the reassuring performance in the first three months of the year has continued, with strong loan growth, good credit quality, lower costs and a decent capital markets performance.
However, City analysts say attention will still largely focus on the timing of the settlement of any overhanging negotiations with the US Department of Justice (DoJ) on the bank’s historical mis-selling of mortgage-backed securities.
Last month, RBS agreed to pay $5.5 billion (£4.2bn) in total to the US Federal Housing Finance Agency over the issue.
Broker Credit Suisse said: “The key uncertainty remains the outstanding investigation with the DoJ on which there has been no progress and [RBS] management reiterates that settlement is needed in order to restart dividends.”
Dividend payments have been suspended at the Scottish bank as it has made nine years of consecutive losses since the financial crash, the latter largely triggered by US sub-prime mortgage security mis-selling by the banking industry.
The predicted underlying £1bn profit compares with an adjusted profit of £716m in the same quarter a year ago. It follows a £259m profit in Q1, the first consecutive quarters of profitability at RBS since 2015.
Graham Spooner, investment research analyst at The Share Centre, said investors are beginning to “see light at the end of what has been a very long tunnel”.
RBS chief executive Ross McEwan is expected to say this Friday that the bank’s core high street and small business banking arm enjoyed another decent year, with lower bad debt charges despite an unhelpful low interest rate environment.
Investment bank UBS has pencilled in a Q2 profit of £576m for the division, up 8 per cent on earnings of £534m a year ago. “The market will be looking for confidence that these trends have continued into Q2 and beyond,” Deutsche Bank said in a note.
“RBS remains the most rate-sensitive of the large-capitalisation domestic banks, though we continue to assume a rate rise is unlikely before Brexit completes.”
The NatWest Markets investment banking business is thought to have made a profit of about £88m, down 53 per cent on an exceptionally strong first quarter of this year.
One analyst said: “Q1 is usually very important for investment banking. And this year there was a lot of volatility for that quarter, which helped NatWest Markets and its peers.
“The fall in profits is purely down to the strong comparators with that earlier quarter.”