Royal Bank of Scotland is on track to beat analysts' forecasts with 2007 profits of over 10 billion pounds ($20.4 billion) after a lower-than-expected fall in the value of assets in this year's credit crunch.
RBS shares jumped over 8 percent after the upbeat forecast on Thursday, and by 0843 GMT they were up 6.9 percent at 498 pence. Other UK bank shares were also boosted by the update.
Britain's second-biggest bank said that asset writedowns would total 1.25 billion pounds, including 950 million pounds for its investment banking unit and 300 million pounds for the ABN AMRO units it bought in October.
"They (writedowns) are an attempt to capture what we think the total loss will be," said RBS Chief Executive Fred Goodwin.
"Within the figures presented today there is an allowance for a deterioration and getting worse from here...so there would only be an additional provision if the future trajectory of delinquency got materially worse from where it is now."
Excluding ABN, RBS said its 2007 profit would be "well ahead" of analysts' average forecast of 9.8 billion pounds, including the impact of the writedowns and gains on planned disposals, notably Southern Water. Results would still be "comfortably ahead" excluding the one-off items.
"This has knocked quite a few of the worries on the head," said Bruce Packard, analyst at Pali International. "The share price performance over the last three months has been anticipating they will have to come to the market for more cash, and that seems to have been knocked on the head with this statement."
RBS said its capital ratios at the end of this year are expected to be comfortably within its 7-8 percent target range for core tier 1 capital. Its funding and liquidity position remained "strong".
Growth at global banking and markets (GBM), the investment bank unit that contributed over 40 percent of group profit in the first half of the year, had slowed in the second half amid turmoil in credit markets, but the unit would report good underlying income and profit growth for 2007, RBS said.
RBS led a consortium that purchased Dutch bank ABN for 71 billion euros, the world's biggest bank takeover. RBS will get ABN's wholesale business and Asian operations.
In its first update on ABN, RBS said the integration was progressing well, and it expected to deliver transaction benefits "somewhat greater than anticipated" when it made its offer.
The acquisition should deliver slightly higher earnings accretion than previously expected, it said.
RBS was expected to report a 2007 underlying pretax profit of 9.86 billion pounds, based on the average from a Reuters Estimates poll of 12 analysts, up from 9.41 billion in 2006. Analysts had forecast it would write down between 1.5 billion and 1.9 billion pounds.