RBS bounces back into profit - but only just

(Update) The recovery at Royal Bank of Scotland under Stephen Hester continues although first half operating profits of £1.1 billion shrink to just £9 million when the cost of the toxic clean-up is taken into account.

Royal Bank of Scotland Group swung to a pre-tax profit of £1.1 billion in the first half of the year and said the group is making steady progress turning itself into a 'safer' business.

RBS - which is 83% owned by the taxpayer - was forced to accept bailout money after it lent too generously to commercial real estate firms and overpaid for parts of Dutch banking group ABN Amro just ahead of the financial crisis.

Chief executive Stephen Hester said: 'The task of restructuring and improving RBS’s risk profile continues to go well. This is illustrated by strong stress test results in the recent EU-wide exercise, as well as the first upwards steps in underlying credit rating agency assessments.'

RBS shares advanced just over a penny to 53.1p, up 2.1%, as analysts said the numbers were a touch ahead of forecasts and the consensus full-year estimate may be nudged higher.

But while the pre-tax result makes it look like RBS is in rude health the group also reported a net attributable profit (revenues adjusted for the cost of doing business, depreciation, interest, taxes and other expenses) of just £9 million. On this basis a £257 million profit in the second quarter only just made up for the loss of £248 million in the first quarter.

Hester said the outlook remains murky. For the year as a whole he believes 'core profits will be offset by losses elsewhere'. He warned it was impossible to know whether the bank will report a profit as numbers will be affected by a lot of 'noise' as it 'de-risks' its trading and sells non-core businesses. 

The operating profit (which measures earnings before tax and one-off items such as restructuring costs) for those 'core businesses' fell to £4.46 billion from £6 billion as a solid first half performance in retail and commercial banking was offset by lower revenues in investment banking.

RBS has raised £30 billion so far this year from sales including this week's disposal of 300 of its branches to Spain's Santander, thus keeping a condition for receiving government bailout money. It is expected to announce later today it has sold its credit card processing business for £2 billion.

Hester said it was 'absolutely inescapable' that more jobs will be cut and said the bank wants to get as much of the 'bad news' out in the first half of the five-year plan as possible

Like other banks this week, RBS has defended its lending figures in the face of government threats, saying it is lending as much as it can and is on track to meet its mortgage target.

The group said net UK mortgage balances rose 20% or £2.4 billion in the three months to the end of June, saying it helped more than 10,000 customers to move into their first home, up 52% more than in the same period last year.