RBS Profit Beats Forecasts, Confident on ABN Bid
Royal Bank of Scotland, locked in a bid battle for ABN Amro, marginally beat expectations with an 11% rise in first-half profit and said it had not been substantially hit by turbulence in capital markets.
Fred Goodwin, chief executive of Britain's second-biggest bank, said on Friday he remained confident an RBS-led consortium would win ABN based on its mostly cash offer of 71 billion euros ($97.3 billion), which is currently around 6 billion euros higher than a mostly share offer from rival Barclays.
"Shareholders are very good at making judgments for themselves on what the best business proposal is. Certainly cash is more than attractive at this juncture, and the fact that our offer is higher would seem to be a fairly logical basis for shareholders to support it," Goodwin told reporters on a conference call.
He declined to comment on whether shareholders of partner bank Fortis were likely to approve the ABN bid in a pivotal vote on Monday, but he added: "In the unlikely event of needing contingency plans, I'm sure we'll work something out."
Spain's Santander is the third partner in the RBS bidding consortium.
RBS's underlying operating profit rose to 5.1 billion pounds ($10.4 billion) in the six months to the end of June from 4.6 billion a year before and compared with an average forecast of 5.04 billion in a Reuters Estimates poll.
"Like Barclays yesterday, RBS appears undistracted by the bid battle for ABN Amro," said Keith Bowman, an analyst at stockbroker Hargreaves Lansdown.
Bowman described the results as "solid," with strong Asian income, improving bad debts and "a tight rein over costs" countering a weak dollar and UK flood insurance claims.
Credit Market Turbulence
RBS said that headwinds in its UK retail, U.S. and insurance businesses had begun to abate and that turbulence in global capital markets in recent weeks had not substantially hit its business.
Income for its Corporate Markets business in July was ahead of a year ago, it said.
Johnny Cameron, head of RBS's Corporate Markets division, said it was difficult to predict when the leveraged finance market would return to normal but said, "by the end of this quarter, I expect to see the market back in business."
Appetite for credit risk has shrunk and forced RBS to hold debt on its own books for longer than planned before it can sell it on, but Cameron said he was happy with the credit quality.
Global Banking & Markets, RBS's investment banking business within Corporate Markets, maintained strong growth with a 19% jump in profits to 2.2 billion pounds.
Profits at U.S. banking arm Citizens fell 7% to 752 million pounds, hit by the translation impact of a weak dollar and as income fell short of expectations, analysts said.
Insurance profits fell 27% after a 125 million pound hit from claims related to floods across Britain in June. The bank expects a similar level of claims for floods in July.
RBS said it paid out 81 million pounds to cover the cost of refunds to U.K. customers who had complained about past current account charges, within the range of refunds made by other banks after a customer backlash against charges.
Bad debts in the first half were 871 million pounds, down 2% on the year and lower than analysts' forecasts. RBS said impairments on U.K. unsecured loans had now peaked.
RBS raised its interim dividend by 25% to 10.1 pence per share, in line with the rise in the 2006 final dividend.