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RBS posts profit for the first time in a decade but “shadows loom”

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Written by: Tim Chen
23/02/2018
The Royal Bank of Scotland (RBS) has posted profits for the first time in a decade, but there are two points which will cast a shadow over its 2018 projection.

RBS posted a statutory profit of £752m for 2017 – the bank’s first full year of profitability in a decade.

Between 2008 and 2016, RBS posted consecutive losses amounting to £58.4bn, with a £7bn loss posted in 2016.

Total income for 2017 rose 4.3% to £13.1bn compared to £12.6bn, while operating expenses fell 36% to £10.4bn – largely driven by falls in litigation and conduct costs from £5.9bn in 2016 to £1.3bn in 2017.

RBS also revealed a 37% gender pay gap in its results – one of the largest so far reported within the financial services industry, according to figures published in our sister title, Mortgage Solutions.

Stay of execution

Laith Khalaf, senior analyst at Hargreaves Lansdown, said: “RBS has broken its ten year duck and managed to squeeze out a profit in 2017, thanks in large part to a big fall in litigation and conduct costs.

“This is a stay of execution rather than a pardon however,” Khalaf continued. “Two very big shadows still loom over RBS. One is the impending fine from the US Department of Justice, which is going to take a big slice out of the bank’s 2018 profits. The other is the large taxpayer stake, which has to be sold off at some point.”

The multi-billion pound Department of Justice case may be settled in 2018, though RBS stressed that it had no control over the timing of the resolution.

RBS reported £764m provision in Q4 2017 for litigation costs, which included £442m placed towards US mortgage suits, and £175m towards UK payment protection insurance mis-selling.

Separately, the bank was accused in a report published by the Treasury Committee of “disgraceful” and “endemic” mistreatment of struggling small businesses during the financial crisis.

Currently, RBS is majority-owned by UK taxpayers, who have a 71% stake in the bank.

“All in all, it’s been a tricky but momentous year for RBS, in which the bank has put to bed many of the legacy issues which have hampered performance since the financial crisis,” added Khalaf.

At the time of writing, RBS shares had fallen 4.26% since trading began.

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