How much money did RBS make over the last three months? It’s a simple question but, bank results being what they are, there isn’t one answer. Its headline figure, the amount of profit attributable to RBS shareholders for the quarter to the end of September, was £952m, up 6.3% on last year. George Osborne will be happy.
While the bank might prefer us to bask in that number’s warm glow for a few minutes, it must be pointed out that this includes the £1.1bn disposal of most of RBS’ stake in Citizens bank in the US (it now owns 20.9%, which it also intends to divest). Ignoring that one off boon, RBS’ pre-tax operating profit was a mere £2m, down 99.8%. Not so warm.
Hold on, you might ask. What about restructuring costs and all that money the bank keeps setting aside for litigation? In the last three months, RBS spent £847m on shrinking its investment bank (down from over a billion last quarter, but up on last year’s £167m), and £129m clearing up after the various scandals of past years, notably mortgage-backed securities in America (remember them?).
That’s substantially down on last year’s £780m, but factoring these into its profits and factoring out RBS’ positive revisions of its asset and liability values, to find out how much profit RBS actually made from the running of its core business, you get £763m. That’s better than £2m, but it’s still down 36.8% on last year.
RBS is in the midst of a magical transformation from Lehman Brothers into Santander – investment banking is out; personal and business banking is in. The latter divisions are doing well and are about as profitable as they were a year ago, but shrinking its once highly profitable investment bank is hitting the bottom line hard.
Even ignoring restructuring costs, it’s hard to make decent returns when you’re closing shop. Last year, adjusted operational profits from the corporate and institutional division and RBS’s Ulster Bank were a combined £415m. This year they made a £146m loss.
In time, of course, this will become less of an issue as RBS starts to take a shape that chief executive Ross McEwan and new chairman (and MT regular) Howard Davies want. But that could take a while, and it’s hardly out of the regulatory woods yet, with the bank warning that conduct and litigation costs could be ‘substantially greater’ than it has already set aside (plenty of) provisions for.
As Davies put it (somewhat mildly), ‘there are still quite a lot of obstacles to be overcome before we’re back to full health’. Perhaps used to bad news, investors (well, the ones who aren’t the government - it still owns 73%) sent RBS shares down 1.7% to 315.2p in mid-morning trading.
Read Howard Davies' latest musings on the IMF, the next financial crisis and, of course, Paddington Bear here.