RBS pessimistic despite £15m profit
Part-nationalised Royal Bank of Scotland (RBS) returned to profit in the first half of the year, but this was overshadowed by mounting bad debts and a grim outlook.
The bank, which is 70%-owned by taxpayers, made a £15 million pre-tax profit in the six months to end-June - a vast improvement on the £726 million loss seen in the same period last year.
However, RBS had to write down £7.5 billion worth of bad debts - a recurring theme among the reporting banks this week.
Figures were boosted by a £3.8 billion debt exchange programme, which saw the bank buy back its shares when they were at their lowest ebb.
Its investment division also performed well, generating a profit of about £5 billion although its high street and commercial banking operations fared less well with lower revenue and margins and rising bad debts.
Chief executive Stephen Hester described the results as "poor", pointing to shareholders' net attributable loss of over £1 billion. However, he believes they still underline the "core business potential" in place at the bank.
And despite RBS' bad debts totalling around a half of those at Lloyds Banking Group, the former does not share the same short-term optimism over a recovery as its rival.
Hester warns that "results may not substantially improve until 2011 and full recovery will take time", in stark contrast to his Lloyds counterpart, Eric Daniels, who believes that his bank was over the worst of it.
The chief executive, who recently came under fire over his pay deal, also warns that without government intervention, RBS would fail the stress tests implemented by the Financial Services Authority.
Hester says the bank realised that the root of its downfall was not only the banking crisis, but that "its economic foundations lie in a long era of easy money". He says the answer "is not to go back to lending or borrowing too much".
Despite offering a gloomy outlook for the bank, he says any recovery will be built on strong foundations at RBS. "Our first half performance demonstrates this in the face of every possible contrary reason, with customer numbers steady or growing in each of our major businesses," he says.