Closer and far away

30 July 2015 By John Foley Follow @johnsfoley

The state-controlled UK bank is building capital, shrinking assets and expunging historical nasties. The second quarter’s 11 percent operating profit growth reassures. Yet non-state investors’ greatest desires – dividends and an end to government meddling – are not yet in sight.

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Royal Bank of Scotland reported an increase in second-quarter earnings on July 30, but said it would be unable to return capital to shareholders until at least the first quarter of 2017. Net profit was 293 million pounds, 27 percent higher than the same quarter a year earlier.

A 1.1 billion pound charge for restructuring, almost as much as RBS booked in the whole of 2014, was partly offset by a 211 million pound gain on the value of shares in Citizens, the bank’s U.S. retail division.

After stripping out various exceptional items, operating profit of 1.8 billion pounds in the quarter was 11 percent higher than the previous three months. Driven by an improvement in credit conditions, RBS released 141 million pounds of loan impairments in the quarter.

The bank’s core equity Tier 1 capital ratio, a key measure of capital adequacy, increased by 0.8 percentage point to 12.3 percent in the three-month period. RBS has set a target of 13 percent for the end of the year.

RBS cut its risk-weighted assets by 22 billion pounds in the second quarter, to 326 billion pounds. Its goal is to get below 300 billion pounds by the end of 2015.

RBS shares rose in early trading but were down 0.5 percent by 0945 GMT on July 30, at 351.4 pence.

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