Royal Bank of Scotland (RBS) reported third-quarter profits of £392m and said it expects to take the financial hit for a US misselling investigation this year before returning to full-year profit in 2018.
Attributable profit of £392m for the state-backed bank represented a stark improvement from the same period in the previous year, when the lender recorded a loss of £469m. However, it was significantly weaker than second-quarter profits of £680m.
Year-to-date the bank has made £1.3bn in profit. However, return on tangible equity – a measure of profitability for investors – was 4.5 per cent in the quarter, a figure the bank wants to boost to 12 per cent or more.
RBS has cut £708m in costs during the year to the end of September, and said it remains on track to hit £750m by the end of the year.
Adjusted operating profit, which strips out costs the bank hopes will be one-offs, was £1.25bn, down 6.6 per cent on the third quarter of 2016. The fall reflected increased losses in the Capital Resolution business, which is responsible for selling off non-core assets.
Why it's interesting
Yet the bank is still distracted from efforts to focus on core performance by legacy issues a decade on from the start of the financial crisis.
Legacy issues hitting the bottom line range from an impending settlement with the US Department of Justice (DoJ) for misselling retail mortgage-backed securities, to competition concerns after it failed to sell its Williams & Glyn brand. All the while the bank remains 71 per cent owned by the UK government.
RBS gave no update on progress in the DoJ settlement, although its outlook for 2018 profit was premised on provisions "being substantially taken in 2017". Similar settlements from other banks have numbered in the billions of dollars, a toll which would wipe out RBS's 2017 profits.
Overall conduct costs were £125m for the quarter, down from £425m in 2016.
Most of the profits from the recent sale of its stake in Euroclear for €275m (£244m) will be booked in fourth-quarter results, the bank said.
What RBS said
Chief executive Ross McEwan said: “Our strategy to deliver a simpler, safer, customer-focused bank, is working."
We have grown income, reduced costs, made better use of our capital and continued to make progress on our legacy conduct issues.
"Our core bank continues to generate strong profits and we remain on track to hit our financial targets.”