Royal Bank of Scotland (RBS) has reported a dramatic improvement in its fortunes after profits rocketed in the first three months of the year.
The bank said it accumulated pre-tax profits of £1.64 billion in the first quarter of 2014, almost doubling the £826 million profit reported in the same period the previous year. Operating profit stood at £1.5 billion, more than twice last year’s figure of £747 million.
But the most impressive rise was in overall net profit, which trebled from £400 million to £1.2 billion. That represented only the sixth occasion when a quarterly profit has been recorded since the government rescued RBS in 2008, and the first profit since last summer.
Still 81 per cent-owned by taxpayers, RBS has reaped the rewards of its decision to siphon of its toxic assets to a bad bank in November. Though this came at a cost of £4.5 billion, it has allowed the bank to save on impairment charges, especially at Ulster Bank which is owned by the firm.
Cost control also played an important part, as the cost-to-income ratio of RBS fell from 73 to 66 per cent. As expenses become more manageable in line with the revenue coming in, the bank plans to eventually cut this figure to 50 per cent in 2020.
Fines and damages
However, RBS still has a lot of work to do to expunge the effects of bad practice in the past. This will take its toll over the next few months – the bank says that it still expects to report an overall loss for the year, thanks to much higher costs as a result of fines linked to historic issues.
It is also still helping regulators investigate price-rigging in the currency market, which could potentially lead to further payments in the future.
The bank’s annual results set aside £1.9 billion to pay fines and damages associated with US mortgages and market manipulation, but there are still fears the penalties could cost considerably more.
What’s more, the bank is still in the process of restructuring, reducing its overall number of divisions from seven to three.
In spite of these concerns shares in the bank leapt after the results were public. Shares opened 10 per cent higher in London this morning.
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