Royal Bank of Scotland Group Plc (RBS), Britain’s largest state-owned lender, jumped by the most in two-and-a-half years in London after reporting a threefold gain in quarterly profit.
The lender said first quarter-profit tripled to 1.2 billion pounds ($2 billion), beating the 200 million-pound average estimate of eight analysts surveyed by the bank, after impairments fell and its Ulster Bank unit had its first profit since the financial crisis. The stock climbed as much as 13 percent and was up 10.3 percent at 338.2 pence as of 9:56 a.m., the biggest increase since October 2011.
Ross McEwan, who took over as chief executive officer in October, is setting up an internal bad bank, combining divisions and scaling back the investment bank after the lender reported its biggest annual loss since the financial crisis in 2013. His efforts and those of his predecessor, Stephen Hester, to revive profit have been hampered by loan losses and the spiraling cost of redress for customers wrongly sold interest-rate swaps and payment-protection insurance.
“They are a good set of numbers,” Vivek Raja, analyst at Oriel Securities Ltd. in London with a sell rating on the stock, said by telephone. “The key thing is impairments, which really are better than expected across both the bad bank and the core bank — and the outlook is quite positive.”
Both RBS and Lloyds Lloyds Banking Group Plc (LLOY), Britain’s largest mortgage lender, are being helped as the country’s economy starts to grow and the housing market booms, helping to drive down bad debts. Lloyds yesterday posted a 22 percent gain in first-quarter profit. Barclays Plc, the country’s second-largest bank by assets, is slated to report results next week.
At RBS, provisions for souring loans shrank to 362 million pounds in the first quarter from 1.03 billion pounds in the year-earlier period. Impairments were 500 million pounds lower than the estimate of Jason Napier, an analyst at Deutsche Bank AG in London.
“Of course, the risk of really low first quarter charges was always there given big hits booked in the fourth quarter,” Napier wrote in a note to clients today. Ulster had 47 million pounds of impairments in the first quarter, compared with 1.07 billion pounds in the fourth quarter, he noted.
The lender didn’t log any additional compensation costs in the period, RBS said in a statement today. Last year, the bank set aside more than 12 billion pounds for impairments, redress and legal costs.
Costs tied to McEwan’s restructuring totaled 129 million pounds in the period. The bank said it’s “on track” to deliver on its target of cutting 1 billion pounds of costs this year as the overhaul takes effect.
RBS is preparing to sell shares in its Citizens Financial Group Inc. division in an initial public offering during the fourth quarter, though RBS would look “seriously” look at offers for the business, McEwan told reporters on a call today.
RBS has also canvassed investors’ interest in buying a stake in its Ulster Bank operation, according to people with knowledge of the discussions who asked not to be identified because they weren’t authorized to speak publicly. McEwan said the bank may “work with other parties” at Ulster and will update investors later this year. The division swing into a 17 million pound operating profit in the first quarter from a 164 million-pound loss for the year-earlier period.
“We still have a lot of work to do and plenty of issues from the past to reckon with,” McEwan, 56, said in the statement. “Restructuring costs are likely to be considerably higher for the remainder of the year than the rate implied by the first quarter.”
Chief Financial Officer Nathan Bostock told reporters on a call today RBS’s bad bank may post a 1.5 billion-pound loss for the full-year, citing impairments and losses on disposals. The unit had a loss of 114 million pounds in the first quarter.
Before today, RBS shares were the worst performer among Britain’s five biggest banks this year. The government still owns 80 percent of RBS and the stock is still below the 407-pence at which the taxpayer would break even on its holding after providing a 45.5 billion-pound rescue during the financial crisis.