RBS back into profit – but only just

Author: By Russell Lynch, Press Association

The profit at the bank, which is 70 per cent owned by the taxpayer after a £20
billion bailout, came despite bad debts and writedowns soaring to £7.5
billion.

Chief executive Stephen Hester, who has been charged with the turnaround of
the troubled bank, said it had been a “momentous” six months for
the business.

He added: “There will be no miracle cures. Our task is no less than one
of the largest bank restructurings ever done, in the face of strong economic
headwinds.

“Overall results may not substantially improve until 2011 and full
recovery will take time.”

The group was helped into the black at the pre-tax level through a £3.8
billion gain on the falling value of the bank’s own debt.

But after tax and other payouts such as dividends on the preference shares
which were held by the Government, RBS slid to a net loss of £1 billion.

The RBS boss added: “There is every sign that our financial performance over
the next two years, at a group level, will be poor due to the severe
economic downturn in 2008 and 2009 and consequent impact on impairments and
funding costs.”

Mr Hester said he had shrunk the size of RBS by 26 per cent or £574 billion so
far this year to put the bank on a firmer footing.

The chief executive is splitting RBS into unwanted parts which would be wound
up or sold, and those businesses which would be kept on.

The “core” bank made operating profits of £6.3 billion in the first half of
the year, Mr Hester said, helped by a “creditable rebound” in the group’s
investment banking business.

RBS – which made lending commitments in return for financial support – has
made new loans totalling £36 billion to UK homeowners and businesses in the
first half, including 100,000 business loans with an 85 per cent acceptance
rate among smaller firms.

But the chief executive also warned that the mega-practices of the banking
sector were not going away, although RBS has reformed its own bonus system.

“For right or for wrong, in all walks of life, the pay levels people are
offered for doing similar jobs elsewhere are a key benchmark.

“We know to our cost, having suffered significant resignations of valuable
staff members this year, that we cannot ignore competitor pay practices or
we will fail as a business,” he said.

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