RBS Half-Year Profits Hit £1.1Billion
Sector: Banking & Finance
6th August 2010
Royal Bank of Scotland has seen its pre-tax profit leap to £1.14bn in the first half of the year from £15m a year earlier. It reported an operating profit of £1.6bn compared with an operating loss of £3.4bn in 2009.RBS, which is 84%-owned by the taxpayer, has announced 23,000 job losses worldwide since October 2008, including 17,100 in the UK. Earlier this week, it agreed to sell 318 branches to Santander. RBS's results follow upbeat performances from Barclays, HSBC and Lloyds.
Good Progress
Chief executive Stephen Hester said the bank's five-year restructuring plan was "on track". "We are making good progress with disposals and overall business restructuring," he said, but added that the rebuilding of RBS was "a marathon not a sprint". RBS said that it had provided £14.4bn of gross new loans to small businesses, but that net lending to such firms fell - as companies paid back more debt than they took on. Banks have been criticised for not doing enough to support firms during the economic downturn. Like its rivals, RBS insists that in the current climate it cannot lend faster than its customers want to repay their existing debts. The group's net interest margin - the gap between what it pays in interest and what it charges in loans - rose to 3.77% from 3.57% a year earlier
Government Rescue
Last year, RBS was told to sell branches by the European Commission to safeguard competition concerns after it was bailed out by the UK government. The sale of the branches to Santander earlier this week includes 311 RBS-branded branches in England and Wales, and seven NatWest branches in Scotland. Spain's Santander already owns the Abbey, Alliance & Leicester and Bradford & Bingley brands in the UK. The sale will earn a premium of about £350m on the assets' value. RBS said on Friday that the sale of its credit card payment processing business, GMS, was at "an advanced stage". Reports suggest two private equity investors will buy the firm in a £2bn deal that would generate up to £900m profit for the bank.
Recovery
RBS led a consortium that bought Dutch bank ABN Amro before the credit crunch in 2007, but the deal was a disaster, weakening its balance sheet and forcing the government to pump in about £45bn to keep the bank afloat. The government paid an average of 50.2 pence for each of its 90.6 billion RBS shares it bought to save the bank from collapse. After the latest results were released, RBS's share price climbed 2% to near 53 pence, leaving the state with a current paper profit of more than £2billion.
However, there are not thought to be any plans to sell its stake in either RBS or Lloyds any time soon - both in the hope of making a larger profit as the bank continues to strengthen and the feeling that such a move could threaten the fragile banking recovery.
RBS is also paying a fee for a taxpayer-backed insurance fund, known as the asset protection scheme. RBS has put £282bn in toxic debts into that fund and will bear the first £60bn of losses on these.
Most of the banks reporting this week have reported an improvement in the amount set aside for bad debts, which has helped to boost the results overall.
Source: BBC News
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