Published: Sun, October 29, 2017
Economy | By Melissa Porter

Royal Bank of Scotland posts third consecutive quarterly profit

While the bank expects to be profitable this year, it could be hit by a multi-billion dollar fine by the US Department of Justice in the fourth quarter over the sale of toxic mortgage-backed bonds between 2008 and 2013.

The settlement is separate to what is expected to be a far larger penalty in the USA over claims RBS mis-sold mortgage bonds leading up to the 2008 banking crisis.

Settling the case is seen by investors and analysts as a prerequisite for the British government to sell its 71%stake in the bank, and for RBS to resume paying dividends.

On Thursday, the bank settled a separate United States criminal investigation that accused its traders of lying to clients over investments between 2008 and 2013.

Royal Bank of Scotland has posted a profit of £392m ($514) for the third quarter, compared to an attributable loss of £469m in the same period a year ago. The report outlined numerous failings and the FCA said it was investigating further, raising the possibility of action over an issue McEwan had hoped to settle via a 400 million pound compensation scheme.

RBS said it had taken out £708m in costs as part of a simplification programme that had reduced the size of the business.

RBS also detailed £125m in third-quarter conduct and litigation costs and £244m in restructuring charges.

"Our strategy to deliver a simpler, safer, customer-focused bank is working", said RBS chief executive Ross McEwan.

But analysts, warned this might not last if any of the bank's legacy conduct issues derail its progress.

RBS is still 73% owned by the government following its emergency bailout in 2008. RBS also faces the possibility of further action from Britain's financial watchdog over the treatment of small businesses in its Global Restructuring Group (GRG) during and after the financial crisis.

A spokesman for RBS said: "Having identified misconduct and self-reported the matter to the authorities, RBS has extensively co-operated with this investigation".

"More progress, but no update on the DoJ investigation and the spectre of GRG still leaves a question mark over whether the bank really can return to profitability next year", said Neil Wilson, senior market analyst at ETX Capital.

The group's shares have added more than 45 percent to their value over the past year, and are up by just under a quarter in the year-to-date.

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