RBS Posts First Half-Year Profit in Three Years -- 2nd Update

By Max Colchester 

LONDON-- Royal Bank of Scotland Group PLC swung to a net profit for the first six months of 2017, bolstered by an unexpected revenue driver: its beleaguered investment banking division.

The 71% U.K. government-owned bank's bottom line for the half-year was in the black for the first time in three years, helped by increasing revenue and a fall in one-off costs linked to its slow march from taxpayer ownership.

A surprisingly strong performer was its NatWest Markets investment banking unit, where revenues increased by 14% in the first six months of 2017 due to strong fixed-income trading. RBS has spent years slashing its trading desks to refocus on its British retail business.

The lender said Friday it would repurpose its Dutch banking license so that its investment banking division could service customers in mainland Europe after Brexit. The bank expects less than 150 roles to move overseas. The cost of the move will be in the low tens of millions of pounds.

Overall revenue came in at GBP6.91 billion, compared with GBP6.06 billion ($7.96 billion) the year before. The bank made a net profit of GBP939 million, compared with a GBP2.05 billion loss in the first half of 2016, when it paid the British government over GBP1 billion to regain the right to pay dividends.

The bank said restructuring costs continued to rise in the first six months of 2017, as it pursues a multiyear turnaround to shed businesses and refocus on the U.K.

Analysts at UBS hailed "strong underlying results," which pushed shares up 3.4% in morning trading.

Litigation costs came in at GBP400 million, as the bank paid to settle disputes with U.S. authorities and a class action by shareholders.

Despite improving returns, the lender will likely make its ninth consecutive full-year loss in 2017, hit by costs linked to fines and winding down its "bad" bank. However, Chief Executive Ross McEwan said the bank was "clear and closer" to making a profit, which it aims to do on a full-year basis in 2018, a decade after its taxpayer bailout.

In recent months, the bank has made strides to clean up some of the legacy issues hanging over it. In July, it agreed to pay $5.5 billion to the U.S. Federal Housing Finance Agency to settle a probe into its sale of toxic mortgage-backed securities in the run up to the global financial crisis. The bank also reached a preliminary agreement with the European Commission to spend over $1 billion to boost competition in the U.K. The deal came after RBS was found in breach of European competition rules following its bailout.

Three major hurdles remain before the bank returns cash to shareholders: RBS needs to convincingly pass a balance sheet stress test; it needs to settle criminal and civil investigations with the U.S. Justice Department over its role in packaging subprime mortgages and it needs to make a profit. The bank says it still hasn't had an update from the Justice Department on when a settlement might come.

Write to Max Colchester at [e-mail]

(END) Dow Jones Newswires

August 04, 2017 05:04 ET (09:04 GMT)

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