By Max Colchester
LONDON--Investors hailed Royal Bank of Scotland PLC's best
quarterly results since 2007, sending shares sharply higher after
the bank reported a surge in net profit.
The 80% government-owned bank's results were bolstered by a 65%
fall in bad debts across its loan book as the British economy
continued to improve. Results were also flattered by not having to
provision for a number of misconduct issues that have haunted the
lender since the financial crisis. Costs were slightly lower than a
year ago as RBS shed 6,300 jobs, mostly in its U.K. retail and
markets divisions.
Net profit for the three months to March 31 rose to GBP1.2
billion ($2.02 billion) compared with a profit of GBP393 million a
year earlier. The results were helped by proceeds from the sale of
its remaining stake in Direct Line Insurance Group.
Following RBS's best quarterly result since 2007, its shares
soared more than 10% in early morning trading. However, RBS warned
that costs would likely rise considerably when the bank launches a
major restructuring plan in the second half of the year.
Impairments could also increase as the year goes on, the bank said.
"We still have a lot of work to do and plenty of issues from the
past to reckon with," said RBS Chief Executive Officer Ross
McEwan.
The results offer a breather in what has been a tough year for
the bank. RBS is undergoing an overhaul as its new management looks
to take out GBP5 billion in costs over the next few years and
refocus on its U.K. retail and corporate operations.
The bank also continues to labor under increasing political
interference. The U.K. government recently said it would not vote
in favor of a proposal to allow the bank to pay bonuses of up to
double fixed pay.
"We understand that this is a difficult position to put our main
shareholder in," said Mr. McEwan. "I'm not going to pretend that
this is ideal for us." He said the bank would work hard to retain
its top earners, but didn't elaborate.
A bright spot was the performance of Ulster Bank, RBS's Irish
division, which recorded its first quarterly operating profit since
2009. RBS wants to stay in the Irish market but is weighing options
on how to structure its business there, which will be outlined this
summer, Mr. McEwan said.
The bank's beleaguered markets division continued to weigh on
revenue, which dipped to GBP5.05 billion from GBP5.16 billion in
the same quarter a year earlier, as the bank's investment banking
arm continued to contract.
The overall stronger results meant the bank's Common Equity Tier
1 ratio, a key indicator of the bank's health, was at 9.4%, up from
8.6% at the end of 2013.
Write to Max Colchester at max.colchester@wsj.com
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