RBS shares fall after bank reports 5 17bn pre tax loss

RBS shares fell 2.5% in early trading in London on Thursday after the government owned bank reported a multi-billion loss for 2012. Share bucked an otherwise positive start to trading for UK-listed blue-chip stocks, with the FTSE 100 gaining 0.5% or 31 points to trade at 6356.

Yet it was RBS shares which took the headlines. The bank reported a pre-tax loss of £5.17bn for 2012, thanks to a £4.65bn accounting charge related to the bank’s strengthening credit profile. The bank’s operating profit excluding items, however, jumped an impressive 90% to £3.462bn. RBS set aside an additional £1.1bn in the year to cover compensation claims for misselling PPI insurance and swaps, taking the full compensation costs to £2.2bn.

The actual loss was slightly deeper than expected by analysts and this is where much of the drag on share prices has come from in the morning session though much of this drag was countered by an impressive bounce in underlying performance. RBS shares have rallied an impressive 70% since January last year. Expectations that RBS is now moving closer to exiting government ownership is also welcome news both for private shareholders and UK tax payers. Stephen Hester, the bank’s CEO said “the light at the end of the tunnel is coming closer.”

Yet much of the return of RBS to private hands will rest in timing. The UK coalition government can ill afford selling all or part of its 82% stake in RBS at a significant loss to the tax payer and so whilst the light at the end of the tunnel is certainly closer after a 90% jump in underlying profits, there may well remain some distance yet.

Looking ahead, Lloyds Banking Group reports numbers at 7am tomorrow morning for the full year 2012 period.