Shares in RBS shot up 4.2 per cent to 368.1p in early trading this morning after the bank reported profits had jumped 27 per cent in the three months to the end of June. Was that gentle creaking the sound of Royal Bank of Scotland moving one step closer to privatisation?
The bank said it made an attributable profit of £293m during the period, up by more than a quarter since the same period last year - and against an expected loss of £260m.
Underlying profit excluding restructuring costs dipped to £1.8bn, from £1.95bn this time last year.
However, that doesn't mean it hasn't had its fair share of problems over the past few months - and it said it had set aside £459m to deal with conduct and litigation, with £69m of that accounting for interest rate swap misselling.
On a six-monthly basis, the made loss of £153m, compared with a £1.4bn profit during the first half of last year.
And it also booked a £1.05bn restructuring charge, although that included getting rid of £3bn of assets in its Capital Resolution arm, also known as its "bad bank", meaning the division has now shed about 80 per cent of its assets.
Why it's interesting
Since the government began selling off shares in Lloyds in 2013, RBS - which is 78 per cent taxpayer owned - has been left in the dust by its rival. But since its £45.8bn bailout in 2008, RBS' share price has remained stubbornly below that at which the government bought it.
While the government has previously insisted it wouldn't dream of selling off RBS unless its share price hit the magical 500p level, in recent months George Osborne has admitted he's keen to wash his hands of the bank. In June, he hired Goldman Sachs to advise on the sale of its shares.
In February, new chief executive Ross McEwan unveiled plans to restructure the bank and shrink its investment bank. And so far it looks encouraging: yesterday RBS announced plans to cut its stake in troubled US lender Citizens even further, to 20 per cent - which is as much symbolic of RBS' increasing strength as it is financially helpful.
What the analysts said
Richard Hunter, head of equities at Hargreaves Lansdown, said:
Contributions from the personal and business and commercial and private banking units were pleasing, with the rundown of the “bad” bank continuing apace. Even so, a number of clouds remain, not least of which are the costs arising from litigation and conduct fines, the continuing unwelcome government stake and a sharp hike in restructuring costs given the accelerated programme the bank is undertaking. A date of early 2017 has now been flagged as the earliest possible time for the resumption of the dividend, giving income seeking investors one more reason to avoid the shares.With this in mind and perhaps not surprisingly, the share price is unchanged over the last year, as compared to a 3 per cent drop for the wider FTSE 100. Market sentiment towards the company is equally flat, with the general view of the shares as a sell remaining in place.
RBS' balance sheet continues to strengthen - but this morning's jump in profit came as a surprise.