Royal Bank of Scotland Group Plc unexpectedly posted a profit in the
second quarter, boosted by a sale of its U.S. consumer bank and lower
misconduct costs. The shares surged.
Net income rose to 293 million pounds ($457 million) from 230 million
pounds in the year-earlier period, Edinburgh-based RBS said in a
statement on Thursday.
Analysts had estimated a loss of 259 million pounds, according to the average of 10 in a company survey. The bank made a profit of 674 million pounds from Citizens Financial Group Inc., reflecting an increasing value of its stake in the lender.
Chief Executive Officer Ross McEwan is selling assets and cutting thousands of jobs to return the bank to annual profit ahead of the U.K. government’s plans to sell 25 billion pounds of its RBS shares within five years. RBS has seen reviving earnings, fueled by a booming U.K. housing market, which helped free up money previously set aside to cover bad loans.
“We’re making good progress on our plan,” McEwan said on a call with reporters. “Capital is up, costs are down and there’s growing strength in our go-forward business.”
The shares jumped 4 percent to 367.6 pence at 8:13 a.m. in London. That’s the biggest jump in almost three months.
The results follow a 446 million-pound loss for the first quarter when the bank set aside money for currency-manipulation probes.
RBS’s
litigation and conduct costs fell to 459 million pounds in the second
quarter from 856 million pounds in the previous three months, while
restructuring costs rose to 1.1 billion pounds from 453 million pounds.
Profit excluding restructuring costs and conduct and litigation charges was 1.8 billion pounds in the second quarter, down from 1.9 billion pounds a year earlier.
That beat the 1.3 billion-pound estimate of four analysts in a Bloomberg survey. The bank cautioned revenue will be lower in the second half as the restructuring of its investment bank accelerates.
British lenders have been hurt by a rising legal bill, driven by costs for compensating customers for wrongly sold payment protection insurance. RBS didn’t set aside more money for PPI in the second quarter, while Barclays Plc took a provision of 600 million pounds in the period.
Lloyds Banking Group Plc, which has been the hardest hit by PPI, will report first-half earnings on Friday.
“There are some tough issues coming down the track,” McEwan said. “This will continue to be a noisy year as we go further and faster on restructuring and deal with the conduct issues of the past.”
To help offset rising litigation costs, McEwan has been selling assets and eliminating jobs at the lender. RBS said it’s “on track” to achieve cost cuts of 800 million pounds in 2015, with some 700 million pounds achieved in the first six months.
RBS said it plans to complete the exit from Citizens by the end of 2015, subject to market conditions. The divestment, along with the “strong progress” made in shrinking the securities unit and the bad bank, will help the lender reduce risk weighted assets to below 300 billion pounds in 2015.
Analysts had estimated a loss of 259 million pounds, according to the average of 10 in a company survey. The bank made a profit of 674 million pounds from Citizens Financial Group Inc., reflecting an increasing value of its stake in the lender.
Chief Executive Officer Ross McEwan is selling assets and cutting thousands of jobs to return the bank to annual profit ahead of the U.K. government’s plans to sell 25 billion pounds of its RBS shares within five years. RBS has seen reviving earnings, fueled by a booming U.K. housing market, which helped free up money previously set aside to cover bad loans.
“We’re making good progress on our plan,” McEwan said on a call with reporters. “Capital is up, costs are down and there’s growing strength in our go-forward business.”
The shares jumped 4 percent to 367.6 pence at 8:13 a.m. in London. That’s the biggest jump in almost three months.
The results follow a 446 million-pound loss for the first quarter when the bank set aside money for currency-manipulation probes.
Profit excluding restructuring costs and conduct and litigation charges was 1.8 billion pounds in the second quarter, down from 1.9 billion pounds a year earlier.
That beat the 1.3 billion-pound estimate of four analysts in a Bloomberg survey. The bank cautioned revenue will be lower in the second half as the restructuring of its investment bank accelerates.
British lenders have been hurt by a rising legal bill, driven by costs for compensating customers for wrongly sold payment protection insurance. RBS didn’t set aside more money for PPI in the second quarter, while Barclays Plc took a provision of 600 million pounds in the period.
Lloyds Banking Group Plc, which has been the hardest hit by PPI, will report first-half earnings on Friday.
“There are some tough issues coming down the track,” McEwan said. “This will continue to be a noisy year as we go further and faster on restructuring and deal with the conduct issues of the past.”
To help offset rising litigation costs, McEwan has been selling assets and eliminating jobs at the lender. RBS said it’s “on track” to achieve cost cuts of 800 million pounds in 2015, with some 700 million pounds achieved in the first six months.
RBS said it plans to complete the exit from Citizens by the end of 2015, subject to market conditions. The divestment, along with the “strong progress” made in shrinking the securities unit and the bad bank, will help the lender reduce risk weighted assets to below 300 billion pounds in 2015.
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