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RBS reports rare Q1 profit 2 May 2014

Royal Bank of Scotland (RBS) has reported pre-tax profits of £1.6bn for the three months to the end of March 2014.

The first quarter (Q1) performance was more than four times better than that predicted by City analysts who had forecast a profit for the first quarter of £300m.

The bank, 81% owned by the taxpayer , reported an underlying profit of £1.2bn, up from £400m the year before and only the sixth time it has reported a quarterly profit since its £45bn bailout in October 2008.

The bank’s performance compares to a £3.9bn loss in the final three months of 2013 and a profit of £826m in the same period last year.

While that was almost double the profit recorded in the same quarter a year earlier, RBS sounded a note of caution when it said it faced a “tough year” ahead as it continued to deal with the cost of restructuring the business and expected regulatory fines.

Profits were boosted by stemming the losses incurred by its Irish subsidiary, Ulster Bank, which posted a pre-tax profit of £17m, its first profit since the first quarter of 2009. This contrasts sharply with a loss of almost £1bn in the previous quarter and £164m in the first three months of 2013.

Several banking analysts say the positive results reflect the impact of RBS’s decision last November to create an internal “bad bank”, designed to fence off its more toxic assets and leaving the rest of the bank in a better position to lend.

RBS said its cost-to-income ratio fell to 66% in the quarter, compared with 73% in the previous quarter. The bank said it was on track to reach its medium-term goal of a 55% cost-to-income ratio and its target of 1 billion pound cost reductions during 2014.

Another major issue for the bank is improving its IT systems and RBS said it would be investing £750m specifically on improving the security of its systems as part of a five-year £7bn computer upgrade programme.

Ross McEwan, chief executive of RBS, said: “Today’s results show that in steady state, RBS will be a bank that does a great job for customers while delivering good returns for our shareholders. But we still have a lot of work to do and plenty of issues from the past to reckon with.”



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