RBS is still being pummelled by litigation and restructuring costs

The Royal Bank of Scotland swung back into the black in the first quarter but it is not as positive as it looks.

It is still being hit by a spate of litigation and restructuring costs and it was relieved of not having to pay a £1.2 billion payment to the Treasury, which it did a year ago in order to remove a block on dividend payments.

Operating profit before tax hit £713 million in the first quarter this year while net profit beat analyst expectations of £50 million, hitting £259 million.

RBS, which is 73% state-owned, said in its Q1 results statement that it was still encountering a number of costs.

These include:

• Restructuring costs – £577 million in the quarter, an increase of £339 million compared with the same quarter last year.
• Litigation and conduct costs – money set aside for legal issues and compensation -£54 million “comprised a number of small charges.”

RBS still has a lot of issues to tackle

Although the Q1 results do not look too bad in isolation, you have to look at the long-term trend.

The results come after RBS reported its ninth consecutive year of losses, in February, and said it would not make a profit until 2018.

The bank said in its full year financial results statement that it lost £6.955 billion compared with £1,979 million in 2015. The reason it lost so much money is down to litigation and conduct costs – money set aside for legal issues and compensation – of £5.868 billion, as well as other key elements, such as restructuring costs totalling restructuring costs.

It is also struggling to see what it can do about its spin-off Williams & Glyn unit, which it was initially meant to sell as a condition of its massive government bailout in 2008.

RBS has struggled to sell it’s W&G unit for years. Initially, when RBS was bailed out by the UK taxpayer for £45 billion from 2008, one of the conditions was that RBS must sell W&G as a condition of returning excess capital and dividends to investors.

The bank is still almost three-quarters owned by the British government, despite the government gradually selling off small portions of the bank in the past two years.

Last year, RBS warned that it would fail to meet the initial December 2017 sale deadline.