RBS returns to profit, warns of conditions ahead
The part-nationalised lender said it had cut its exposure to Greece and Italy due to the debt crisis
By CFOWorld.co.uk | CFO UK | Published 10:34, 04 November 11
Royal Bank of Scotland returned to profit on Friday when it announced a third quarter net profit of £1.2 billion but warned that it expects difficult market conditions in the next quarter.
Third quarter net profit was up from a second-quarter loss of £897 million, although the operating profit at its core division fell to £1.3 billion from 1.7 billion in the previous quarter.
With banks around the world hit by Europe's debt crisis, the part-nationalised lender said it had cut its exposure to Greece and Italy.
RBS added that it had taken a further impairment loss of £142 million on its exposure to Greece during the third quarter.
RBS, which is 83 percent owned by the government following a state bailout during the 2008 credit crisis, followed the likes of Barclays and Morgan Stanley in benefiting from a debt accounting gain, which boosted its earnings by £2.36 billion and helped offset lower profits at its GBM investment banking division.
"RBS's third-quarter results show the improved strength and resilience we have built up since 2008," chief executive Stephen Hester said in a statement.
"They also highlight the external pressures facing banks, and economies more broadly, which are making the road to recovery longer and bumpier than hoped for," he added.
RBS shares, which have fallen nearly 50 percent over the last year, rose sharply in early morning trade as analysts and investors said they were reassured by the bank's underlying business performance and capital position.
RBS had a core Tier 1 capital ratio of 11.3 percent and said it had a liquidity poll of £170 billion.
RBS shares were up 4.6 percent at 23.85 pence, making it the top gainer on Britain's benchmark FTSE 100 index, which rose by 0.6 percent. The stock however remains well below the average 49.9 pence price at which the British taxpayer acquired its stake in the bank.
RBS added it sold £2.5 billion of Italian bonds in the third quarter, leaving it with just £294 million worth, following rivals including BNP Paribas, ING and Barclays in selling down sovereign debt in the face of euro zone turmoil.
RBS had cut its holdings of sovereign debt from Portugal, Italy, Ireland, Greece and Spain to £772 million at the end of September, from £4 billion at the start of the year, with most sales in the third quarter.
Britain acquired stakes of around 83 percent in RBS and 40 percent in rival Lloyds after having to bail out both banks during the 2008 credit crisis.
RBS was rescued in October 2008 after its finances were stretched by the credit crisis and its part in the acquisition of Dutch bank ABN AMRO in 2007.
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