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UPDATE 2-Britain's RBS shares jump 10 pct after profit trebles

* Q1 net 1.2 bln stg vs company poll consensus of 200 mln

* Says conduct investigations continue to create uncertainty

* Says markets income to be lower in rest of year

* Cost-to-income ratio improves

* Shares up more than 10 percent

(Adds further details, analyst reaction)

LONDON, May 2 (Reuters) - Part-nationalised Royal Bank of Scotland trebled its profit in the first quarter, beating analysts' expectations as it benefited from improved cost controls and a reduction in losses from bad loans.

Its shares, which had fallen earlier this year to their lowest in eight months, jumped over 10 percent to their highest since late February.

The bank, 81 percent-owned by the UK government, reported a net profit of 1.2 billion pounds, up from 400 million the year before and only the sixth time it has reported a quarterly profit since its 45 billion pound ($76 billion) government rescue in 2008.

Analysts had forecast a profit of 200 million pounds, according to a poll of eight analysts provided by the bank.

"Today's results show that in steady state, RBS will be a bank that does a great job for customers while delivering good returns for our shareholders," Chief Executive Ross McEwan said in a statement on Friday.

"But we still have a lot of work to do and plenty of issues from the past to reckon with," McEwan said.

The results, which come a day after fellow bailed-out bank Lloyds also reported improved earnings, reflect the impact of RBS's decision last November to create an internal "bad bank", designed to fence off its riskiest assets and leaving the rest of the bank in a better position to lend.

They also include no new charges for past misconduct. RBS had already said in January it would take a 3 billion pounds charge in its 2013 results to cover the cost of past misdeeds, such as the possible mis-selling of U.S. home loans - resulting in its top executives not receiving any bonuses for the past year.

The bank said an improvement in economic confidence in Britain had continued and it expected a modest increase in its net interest margin - a key measure for banks which reflects the difference in the rates at which it lends and pays out to depositors - over the remainder of the year.

"We believe the bank remains the best way to play the UK (economy) over the next two years. The first-quarter results confirm the underlying earnings power of the franchise," said analyst Chirantan Barua at brokerage Sanford Bernstein.

FURTHER CLAIM

RBS is among several major banks assisting regulators around the world investigating allegations of collusion and price-rigging in the global currency market.

Investors have also filed lawsuits against the bank saying they were misled over its massive rights issue of shares in 2008 and claiming billions of pounds back. RBS said on Friday a further claim was filed in the High Court in London on April 28 against it in regard to the 2008 issue.

It said investigations into its conduct continued to create uncertainty and the timing and amounts of further settlements were uncertain.

The bank said on Friday that income from its investment bank is expected to be lower in the remainder of the year, in line with wider industry trends.

RBS has shrunk its investment bank dramatically to satisfy lawmakers who want it to focus on lending to British households and businesses.

The bank said its cost-to-income ratio fell to 66 percent in the quarter, compared with 73 percent in the previous quarter. It said it was on track to reach its medium-term goal of a 55 percent cost-to-income ratio and its target of 1 billion pound cost reductions in 2014.

RBS also said Nathan Bostock, who is leaving to join rival Santander UK (part of Spanish bank Santander ), will cease to be finance director on May 19 and will leave the RBS board on May 28.

Santander said he will take up his new position as deputy chief executive on Aug. 19.

RBS posted an 8.2 billion pound pretax loss in 2013 due to restructuring costs and misconduct charges, taking the total it has lost since the bailout to 46 billion pounds.

($1 = 0.5919 British Pounds)

(Editing by David Holmes)