UK bank RBS reports first annual profit in a decade
Royal Bank of Scotland (RBS) posted its first annual profit in a decade Friday, continuing its recovery following the financial crash of 2008.
The bank recorded a net profit of £752 million ($1.05 billion) for 2017, surpassing analyst forecasts for a figure of £592 million. Just a year earlier, the bank had suffered an annual loss of £6.95 billion.
Operating profit came in at £2.239 billion, a notable increase of £6.321 billion compared to 2016. Fourth-quarter operating losses before tax were £583 million, with a net loss of £579 million. Shares sank 4 percent as European markets opened Friday, in part due to still-impending penalties from the U.S. Department of Justice centered on a significant misconduct probe.
“Our financial strength is much clearer,” RBS CEO Ross McEwan said in a press release Friday, adding that “we still have more to do in cost reduction, however this reflects progress we have made in making the bank more efficient.”
Settlement with the DOJ still pending
Any potential celebrations are on hold, however, as RBS awaits a settlement decision by the U.S. Department of Justice over a probe into the bank’s mis-selling of toxic mortgage-backed securities. Years of scandal and misconduct have dogged the bank’s reputation.
Laith Khalaf, senior analyst at Hargreaves Lansdown, called the positive profits news a “stay of execution rather than a pardon.”
The bank’s impending multi-billion dollar penalty from the Department of Justice is set to impair profitability in 2018, Khalaf explained. This, along with the eventual selling of the government’s majority stake, in large part explains the pressure on its share price.
An agreement must be reached before the bank can begin trying to sell the government’s 73 percent stake. Though expected to be settled by the end of last year, the investigation is still pending.
“That selling activity is going to put downward pressure on the bank’s share price, so until it’s materially completed, the market isn’t going to get too excited about RBS,” Khalaf said.
McEwan said in the press release that the bank’s legacy issues are decreasing in number, however: “We have one major legacy issue that we have yet to resolve which is with the U.S. Department of Justice. The timing of the resolution of this issue is not in our control.”
The state-owned lender was rescued in a record 45.5 billion pound ($59.8 billion) bailout at the height of the 2008 financial crisis and had until now failed to post a profit since 2007.