Close to the bone

28 April 2017 By Liam Proud Follow @liamwardproud

The state-owned UK bank reported its first quarterly profit since 2015. To reach its target of a 12 pct return on tangible equity by 2020, however, it will need to push through further savings. Given many of the obvious efficiencies have been found, that seems a stretch.

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Royal Bank of Scotland on April 28 reported first-quarter operating profit of 1.37 billion pounds, adjusted for disposals, restructuring and litigation costs. The figure was above average analysts’ forecasts of 942 million pounds, according to a company-supplied consensus. Unadjusted earnings attributable to ordinary shareholders were 259 million pounds, beating analysts’ expectations of 50 million pounds.

Revenue adjusted for one-offs such as business disposals was 3.2 billion pounds, 15 percent higher than in the same period last year. Adjusted operating expenses were 1.8 billion pounds – 15 percent lower year-on-year.

The UK lender’s cost-income ratio was 76 percent in the first quarter on a reported basis, but 56 percent when adjusted for credit adjustments, gain on redemptions of debt, strategic disposals and restructuring and litigation costs.

The bank’s common equity Tier 1 ratio, a closely watched measure of capital, was 14.1 percent. Risk-weighted assets decreased by 6.5 billion pounds from the last quarter of 2016.

RBS said its core franchises – those it expects to keep – made an adjusted return on equity of 13.8 percent in the first quarter.

The bank is targeting a 12 percent-plus unadjusted return on tangible equity for 2020, and a cost-income ratio of less than 50 percent.

RBS shares were up 2.2 percent to 259 pence at 0856 BST.

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