First-quarter losses of £116 million for RBS
Part-nationalised Royal Bank of Scotland unveiled steeper losses in the first quarter of the year, but assured investors that it was headed in the right direction.
The FTSE 100-listed bank, which is 83%-owned by taxpayers, reported a pre-tax loss of £116 million in the first three months of the year, versus a lowly £5 million a year ago.
The sharp loss was largely as a result of a £480 million write-down in the value of the group's debt and a £469 million related to fair value changes in the bank's Asset Protection Scheme involvement.
Despite this, chief executive Stephen Hester assured investors that the bank has continued to make "good progress" during the start of the year.
"Financial strength and resilience continue to show sharp improvement as core business profitability broadens and non-core risks are reduced," he said in a statement on Friday.
The group also highlighted the progress made in its underlying business, as it revealed better-than-expected operating profits of £1.1 billion. RBS attributed the healthy figure to the strong performance in the core business where operating profit rose to £2 billion, up 25% on the fourth quarter of 2010.
RBS said core business had achieved a return on equity of 15% during the three month period, in line with the group's long term strategic targets. Meanwhile, core retail and commercial demonstrated continued momentum and as expected, the group's insurance division returned to profit.
Hester added that the recovery was allowing the group to absorb higher Irish impairments and substantially increased regulatory demands, as well as giving it the chance to self-fund other "bills from the past" such as restructuring, disposals and the cost of APS support.
The results came just 24 hours after Lloyds Banking Group posted a hefty pre-tax loss of £3.47 billion in the first three months of the year after it was forced to absorb a £3.2 billion provision made for potential compensation payouts to customers who took out payment protection insurance.
However, unlike its rival, RBS declined to set aside an amount relating to the payment protection insurance, saying it was not yet able to make a reliable estimate, although it warned that it could prove to be "material".
Payment protection insurance is designed to cover you should you fall ill, have an accident or lose your job and can’t make repayments on loans or credit cards. However, research by consumer watchdogs found the cover to be overpriced, filled with exclusions (policies exclude self-employment, contract employees and pre-existing medical conditions) and were often mis-sold because the exclusions were never fully explained. In May 2011, the High Court ruled banks had knowingly mis-sold PPI and ordered them to compensate around two million consumers.
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