RBS remains in red with $272M loss

Royal Bank of Scotland reported a pre-tax loss of ?116m, compared to ?5m a year ago.Royal Bank of Scotland reports a pre-tax loss of ?116mChief executive Stephen Hester hails results as proof of "progress continuing"Finance director Bruce van Saun says company "expects positive trends to continue"

(FT.com) -- Royal Bank of Scotland, the bank that is 83 per cent owned by taxpayers, was lossmaking again in the three months to the end of March.

The bank reported a pre-tax loss of ?116m on Friday, compared with a figure of only ?5m a year ago, but Stephen Hester, chief executive, hailed the results as proof of "progress continuing".

"Financial strength and resilience continue to show sharp improvement as core business profitability broadens and non-core risks are reduced," he said.

RBS highlighted the progress made in its underlying business, with operating profits of ?1.1bn, up from ?882m a year ago. The figure excludes the impact of value swings in the bank's own debt, its asset protection scheme insurance arrangement with the UK government and the impact of restructuring charges.

The bank said the return on equity in its "core" business -- which excludes the impact of legacy assets that are being wound down -- had increased to 15 per cent in the quarter, from last year's 13 per cent.

RBS's figures were unaffected by any provisioning charges for the projected cost of meeting misselling claims relating to personal protection insurance. Lloyds Banking Group shocked the market on Thursday with a ?3.2bn PPI charge.

"The uncertainties around the outcome of the PPI action mean that, at this time, the group is unable reliably to estimate any potential financial liability, although it could prove to be material," RBS said in a statement.

Mr Hester said it would be the decision of the British Bankers Association whether the industry should appeal against a court ruling that PPI had been widely missold. The Financial Services Authority has predicted that resolving the issue would cost the industry ?4.5bn.

"The legal analysis has not changed [following Lloyds' decision]," Mr Hester told the Financial Times. "The courts won't pay any attention to whether Lloyds has caved or not caved."

However, he added that the Financial Services Authority was now likely to be "rather wedded to" the idea of settling the matter with the banks on a par with Lloyds' arrangement.

Despite differences of opinion with Lloyds over PPI, RBS did something to come into line with its rival's view of risks in Ireland. It took a ?1.3bn impairment against Ulster Bank, though that did not stop impairments overall falling 9 per cent to ?1.9bn.

"We believe we may be at a high watermark for impairments [at Ulster]," Bruce van Saun, finance director, said.

The group's investment banking operation, Global Banking and Markets, saw operating profits decline by nearly a third year on year to ?1.1bn, though Mr Hester said he was pleased with the unit's "good solid job". The comparison was distorted by a change in the way bankers' bonuses were accounted for, Mr van Saun said.

RBS's insurance business, which includes Direct Line, returned to the black in the quarter, with an operating profit of ?67m, compared with a ?50m loss a year ago. The recovery comes as RBS prepares to sell the business.

Giving an overall outlook for the rest of 2011, Mr van Saun said: "We expect positive trends to continue. The one exception is Ulster, where we remain cautious."

Shares in RBS opened 2.5 per cent higher at 41.4p.

© The Financial Times Limited 2011

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