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Further penalty expected

Penalties to overshadow RBS profit return

RBS: likely profit (photo by Terry Murden)

Legacy issues are expected to overshadow a return to underlying profit when Royal Bank of Scotland announces half year figures this week.

The bank, which is still 71% owned by the taxpayer, is tipped to reveal first-half profits of more than £600 million compared with a £2 billion loss last year.

However, it will continue to be dogged by the mis-selling scandal and is facing a further £5 billion penalty before the end of the year over its role in the American sub-prime mortgage meltdown. This is in addition to the £4.2bn it agreed to pay last month to the US Federal Housing Finance Agency.

The bank is also expected to make another sizeable provision to cover for the mis-selling of payment protection insurance.

Last week it agreed an alternative package with Treasury and European Commission officials that will settle its state aid obligations.

Under the plan the bank will no longer be required to sell assets to a newly-created bank under the Williams & Glyn brand which was one of the original conditions of accepting a bail-out from the government in 2008.

Agreement in principle with the Treasury and the EC Commissioner responsible for competition means it will instead promote competition for banking services to smaller firms. 

A £750m provision was recognised in RBS’s 2016 annual results in relation to the previously proposed package of measures. 

An extra charge of £50m in relation to the revised package and its implementation costs will be recorded in Friday’s interim results, taking the total provision to £800m.

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