RBS Returns to Profit, Sets Aside $639 Million for FX Probe
Royal Bank of Scotland Group Plc (RBS), Britain’s largest taxpayer-owned lender, had third-quarter profit that beat analyst estimates even as it set aside 400 million pounds ($639 million) for a currency rigging probe.
The bank posted net income of 896 million pounds after a loss of 828 million pounds a year ago, it said in a statement from Edinburgh today.
Chief Executive Officer Ross McEwan, 57, who took over from Stephen Hester a year ago, has been cutting back investment-banking operations, focusing on domestic customers to reverse six straight annual losses.
“We are reducing costs, and are on track to achieve our capital targets,” McEwan said in the statement.
Revenue declined 11 percent to 4.4 billion pounds, as the bank scaled back its investment-banking activities. Pretax profit was 1.27 billion pounds in the third quarter after a loss of 634 million pounds a year earlier.
RBS is among banks including Citigroup Inc., Barclays Plc (BARC) and UBS AG (UBSN) in discussions with the U.K.’s Financial Conduct Authority that may lead to a settlement of the regulator’s probe into currency rigging as soon as next month, according to people with knowledge of the matter. Barclays said yesterday it took a charge of 500 million pounds to cover a potential fine.
“Ongoing conduct and regulatory investigations and litigation continue to present challenges and are expected to be a material drag on both earnings and capital generation over the coming quarters,” RBS said.
RBS said on Sept. 30 that it expects to “significantly outperform” its previous target of about 1 billion pounds of impairments this year, while the bad bank, housing the company’s riskiest loans, will release about 500 million pounds previously earmarked to cover bad debts.
The bank’s corporate and institutional unit, which houses most of the investment-banking activities, had a loss of 557 million pounds in the third quarter, compared with a shortfall of 18 million pounds a year earlier, reflecting litigation and conduct costs as well as “significantly lower income.”
“Income from the fixed income product suite is expected to remain weak during the fourth quarter, reflecting our ongoing balance sheet reduction program, lower risk appetite, costs associated with exiting legacy portfolios and a weaker than anticipated trading performance during October,” RBS said.