Friday, 25 July 2014

TOP NEWS: Shares in Britain's RBS soar after surprise profit

LONDON (Reuters) - Royal Bank of Scotland posted a surprise 1 billion pound ($1.7 billion) pretax profit for the second quarter thanks to a turnaround in losses from bad loans, prompting it to release earnings a week early.

The numbers far exceeded analysts' expectations for the bank that is 81 percent owned by the British government after being bailed out during the 2008/09 financial crisis.

It sent RBS shares soaring by 14 percent to 376 pence, on course for their biggest one-day gain since April 2009 and boosting chances of the taxpayer recouping what it invested - though maybe not for several more years because the price is still 25 percent below what the state paid.

RBS said the profit was mainly because of an economic upturn that allowed it to write back losses that had been booked on bad loans, giving it a net release of 93 million pounds.

That compared with 1.1 billion pounds of impairments in the second quarter of last year and expectations from analysts that it would book impairments of about 500 million pounds.

The bank made an operating profit of 1.3 billion pounds in the second quarter, up from 174 million pounds a year ago. Its 1.01 billion pound pretax profit was in contrast to expectations that it would post a small loss, based on analyst forecasts compiled by the company.

'STRONGER BANK'

RBS said it was obliged to release headline numbers early because they were far better than market expectations. It will release full results on Aug. 1.

Chief Executive Ross McEwan, who took the helm in October 2013, said the results showed the steady progress being made to make RBS "a much simpler, smaller and fairer bank".

"These results show that underneath all the noise and huge restructuring of recent years, RBS is a fundamentally stronger bank that can deliver good results for customers and shareholders," McEwan said.

The also increased the amount it set aside to compensate customers for mis-selling payment protection insurance and interest rate swaps by 250 million pounds, and McEwan said the bank still has to tackle a number of problems from its past.

"This includes significant conduct and litigation issues that will hit our profits in the months and years to come," he warned. "I'm pleased we've had two good quarters, but no one should get ahead of themselves here – there are bumps in the road ahead of us."

The stronger results also lifted the bank's core capital ratio to 10.1 percent at the end of June, up from 9.4 percent three months earlier.

(Additional reporting by Simon Jessop; Editing by David Goodman)

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