Cost cutting sees RBS profits treble but US mortgage fine still to come

Royal Bank of Scotland has this morning reported a profit of £792 million for the first three months of 2018 year, up from the £259 million logged for the same quarter last year.

Latest results for the still 72 per cent state-owned lender show the rise, which is well above estimates, can be largely attributed to a fall in restructuring costs, and a drop in conduct and litigation impairments.

The Edinburgh-based group said it hasn’t set aside any more money to cover costs for payment protection insurance (PPI) mis-selling claims.

However, the bank also noted that the ongoing strategy of shrinking the bank has also begun to result in significant savings that have also boosted its bottom line.

The quarterly profit follows on from RBS’s first annual profit in 10 years, reported in February.

But despite today’s good news, the bank said it is still braced for a major, multi-billion fine for mis-selling mortgages in the US in the run-up to the credit crisis.

While the bank has already made provisions for the fine of £3 billion, some estimates of the size of the fine vary between $1bn-$9bn.

But whatever the eventual cost of the hit, it is expected at some point this year after which RBS is expected to return to paying dividends.

The bank’s chief executive, Ross McEwan, said: “This is a good set of results, showing the progress we are making, despite a more competitive market. Our income is up, costs are down and our capital has strengthened again.”

RBS’s “buffer” of capital - a key measure of any bank’s strength - is 16.4 per cent, well above its target of 13 per cent and a level which should mean it can withstand any fine from the US Department of Justice for mortgage mis-selling.

Meanwhile, responding to campaigns against the closure of 52 RBS branches in Scotland this spring and facing criticism that replacement mobile banks do not stop long enough, Mr McEwan said some will be at a location for 15 minutes, but that can be extended if it is found that there is sufficient demand.

He said: “There are 440 communities that we get to every week. This is what people miss.

“This is a big network we’ve created. It just doesn’t happen to be a branch in every village.”

He added that it was now possible for NatWest customers to use RBS systems and vice versa.

With publication of the Royal Bank’s first quarter financial results, Mr McEwan said there will continue to be cuts as the bank reduces the ratio of cost-to-earnings from 60% to below 50% by the end of next year.

Mr McEwan also said that the 10 more rural Scottish branches which are being reviewed until the end of the year before a decision on their future is made, will be delayed as the company doing that work is not now able to do it, so another firm will have to be found.

A further review of more than 300 branches across the UK which are part of the Williams & Glyn network is also planned.