Citizens sale sees RBS profits rise

The news comes a day after RBS announced that it is selling its remaining 20.9 per cent stake in Citizens – worth approximately $2.5bn.

However, the Edinburgh-based lender also revealed that the cost of its extensive restructuring project has soared to £847m.

The shrinking of the bailed-out bank’s corporate operations to focus more on its main UK retail business as part of that strategy meant revenues slipped by £596m to £3.04bn.

The bank also warned that future litigation and past misconduct costs could be substantially higher than expected.

“Material further and incremental costs and provisions in respect of conduct and litigation related matters are expected, and could be substantially greater than the aggregate provisions RBS has recognised,” the bank said in a statement, adding that the timing and size of penalties is “uncertain”.

The lender set aside £129m for litigation, mainly for mortgage-backed bonds.

Excluding the one-off gain from Citizens, movements in the value of its own debt, and a large gain last year from a revaluation of the bank’s loan book, RBS posted a quarterly loss of £213m from a £260m profit a year earlier.

At the same time, RBS strengthened its capital position, chopping another £10bn of risk-weighted assets from its balance sheet and increasing its core capital ratio to 12.7pc, moving the bank closer to a position at which it will be able to pay dividends.

Chief executive Ross McEwan is reshaping RBS into a smaller bank, pulling out of many businesses in Europe and Asia and slimming down its investment banking operations.

The restructuring charges include £190m spent during the three months to September on separating Williams & Glyn, the package of branches RBS was told to sell under EU rules governing state aid.

RBS bought the bank, which is focused on the east coast of the US, for $440m in 1988 and turned it into one of the country’s biggest regional banks.

New chairman Sir Howard Davies said he believed the bank was closer to becoming a normal, steadily profitable bank.

“Since 2008 RBS has gone through a very difficult period, and there are still quite a lot of obstacles to be overcome before we’re back to full health, particularly conduct and litigation in the US,” he said.

“There is a lot of scope in this bank. Clearly it is the core of a very successful business, and one that can perform a crucial role for the UK economy.”

Sir Howard added that he was happy with the existing strategy and management team, who have his “wholehearted support”.

The bank still has to settle litigation in the US over toxic mortgage-backed securities, which could result in a bill of several billion dollars.

The strong financial results should help the share price, which is particularly important for the Treasury which began selling down its majority stake in RBS in August.

Meanwhile, the UK Government has sold off a further 1 per cent chunk in other taxpayer-backed Lloyds Banking Group, reducing its overall stake to less than 10 per cent.

It means the government has now raised £ 16 billion from the sale.

While this sale will be available to City investors, the government has announced plans to sell at least £2billion of the shares to the public at a discounted price in the spring.