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McEwan says RBS ‘in good shape’ as profits highest since crash

Ross McEwan at agm

Ross McEwan: ‘bank in good shape’

Royal Bank of Scotland has announced its biggest half year profit since before the financial crisis a decade ago.

The bank reported an operating profit before tax of £2.7 billion, and an attributable profit of £2.04bn, up 130% from £888m in H1 2018.

It also confirmed an interim ordinary dividend of 2p and a special dividend of 12p, representing £1.7bn being returned to shareholders, of which more than half will go to the Treasury.

Departing chief executive Ross McEwan said this morning that the bank was in a “good position and in good shape for whatever gets thrown at this economy”.

The bank is lending again and is holding good levels of capital, he said.

“This is a solid set of results in challenging market conditions,” he said in a statement.

“We have delivered our largest half year profit in more than a decade and have announced a further £1.7bn in dividends to shareholders, of which more than £1bn will go directly to the UK taxpayer. Given the uncertain and competitive environment, we are focussed on the areas we can control; costs are down, capital and liquidity are strong and we continue to grow lending to the real economy.”

Mr McEwan is leaving the bank to become chief executive of National Australia Bank. The 62-year-old will take on his new role next April.

On a media conference call today, Sir Howard Davies, chairman, said the bank was making “good progress” in the search for Mr McEwan’s successor which will be a “rigorous internal and external” process.

Shares closed 6% lower.

Highlights:

Common Equity Tier 1 ratio is 16% at the end of H1 2019

Costs are down £173m in H1 2019, against a £300m target for the year

Conduct and litigation costs of £55m for Q2, with no new provision for PPI

Net lending up £3.6bn or 2.5% on annualised basis, against a target of 2% – 3%

£14.3bn in gross new mortgage lending – market flow share of 12% against 10% stock share

Market reaction

Donald Brown, head of private clients at Brewin Dolphin Edinburgh, said: “RBS is a very different bank to what it once was. Profits for the first half of the year beat expectations, confirming that the group is on a path to redemption.

“While there are cautionary words around hitting some of it targets against the backdrop of Brexit, RBS appears to be in stronger shape – a fact reflected in its ability to pay a special dividend to long-suffering shareholders, following the sale of its stake in Saudi bank Alawwal.

“There are plenty of positives in these results, but its UK focus and the government’s remaining stake will likely continue to weigh down the share price in the short term. The special dividend will provide a hard-earned £1bn boost to the Exchequer. ”

Russ Mould, investment director at AJ Bell, said: “Despite all the excitement about Royal Bank of Scotland paying £1.7 billion in dividends…the real story is that the bank is highly unlikely to meet its financial targets.

“If you exclude the sale of a stake in Saudi Arabia’s Alawwal Bank then its return on tangible equity in the first half of the year was only 7.5%. That’s some way short of the 12% target for 2020.

“Elements of the story are unchanged, namely that RBS is still suffering from margin pressure thanks to a price war in the mortgage market.

“With the increasing prospect of a Brexit no-deal on the horizon, Royal Bank of Scotland looks to be in a difficult situation.

“And for investors holding the shares as a source of income, they will need to consider the risk of a volatile share price and the potential for capital losses. The market is certainly spooked by today’s announcement given how the shares have fallen nearly 5%.”

See also:

RBS and Barclays facing £1bn lawsuit over alleged forex rigging



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