RBS reports surprise rise in profit

25 July 2014 Last updated at 10:32

Royal Bank of Scotland (RBS) has said it expects pre-tax profits of £2.65bn for the first half of the year, up from £1.37bn last year.

The bank said it had set aside much less money for bad loans than expected - down to £269m from £2.15bn.

The UK taxpayer owns 80% of the bank after a government bail out in 2008.

Despite better than expected results, RBS chief executive Ross McEwan warned of "bumps in the road ahead of us."

RBS shares rose more than 11% in early trading on Friday.

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The company said it released its results a week early because they were significantly stronger than the market was expecting.

"These results show that underneath all the noise and huge restructuring of recent years, RBS is a fundamentally stronger bank that can deliver good results for customers and shareholders," Mr McEwan said.

Markets 'shocked'

A general pickup in the UK economy helped to improve the value of RBS loans, the company said.

Plus, in the first six months of the year RBS had to put aside less than it had expected for compensation.

It set aside £150m for Payment Protection Insurance (PPI) mis-selling claims and £100m for other mis-selling claims.

However, Mr McEwan said the company still faced "significant conduct and litigation issues".

RBS has already put aside £3.8bn for legal costs in its annual results, including a £1.9bn provision for fines and damages relating to mis-selling mortgage bonds in the US, as well as other penalties relating to market manipulation.

Richard Hunter, head of equities at Hargreaves Lansdown Stockbrokers, said that RBS half year results were unexpectedly strong, and a "significant milestone in RBS' return to financial health."

'Bad bank' makes good

"In stark contrast to its recent history, RBS has today shocked the market positively," he said. "Such was the strength of the impending results as compared to market expectations, the company felt compelled to release the numbers early."

RBS Capital Resolution, the so-called 'bad bank' within RBS that was created to take on the bank's riskier assets, made an overall loss in the first six months of £48m.

However, in the second quarter, the bank made a profit of £66m, with the value of its bad loans increasing by £128m.

A general improvement in the UK economy was one of the main reasons that the market value of its toxic assets went up, the bank said.

In addition, Ulster Bank, which has been one of the weakest parts of the RBS Group, made a profit of £55m in the first half of the year. The bank made a loss of £381m in the same period last year.

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