RBS's shrunken CIB unit has rare reason for cheer


The division posted its first underlying quarterly profit in more than a year and its highest revenues since group chief executive Ross McEwan ditched the ‘standalone investment bank’ approach and embarked on a drive to shrink the business.

RBS, in its interim results on August 5, said its CIB unit – excluding restructuring, litigation and conduct charges, and the effects of strategic disposals and movements in the bank’s own credit spreads – had turned operating losses of £54 million in the first three months of 2016 and £13 million in the second quarter of 2015 into a profit of £95 million in the three months to June 30.

The quarterly profits marked a return to the black, albeit on an underlying basis, for the CIB division for the first time since the first quarter of 2015, according to FN analysis of RBS’s past results statements.

Driving the profitability was a surge in revenues, particularly from rates business. The bank said in its latest results that adjusted revenues totalled £404 million, their highest level for any quarter since McEwan unveiled the division’s new strategy in February 2015. Revenues were 18% higher than a year earlier and 46% ahead of their level in the first three months of 2016.

The rise was driven chiefly by rates revenues, which, at £258 million, surged 60% from a year earlier and were more than double their first-quarter level. Currencies revenues, meanwhile, rose 12% from a year earlier to £122 million.

Over the six months to June 30, CIB adjusted revenues were down 17% from a year earlier to £681 million, while operating profits were £41 million, less than half the £87 million figure for the same period in 2015.

At group level, Royal Bank of Scotland said its net loss widened to £2.05 billion in the first half of the year, hit by soaring litigation provisions and more restructuring costs.

The bank said it made revenue of £6.1 billion in the period, down from £7.26 billion a year earlier. Its net loss figure was compared with £179 million a year earlier, as the bank crept toward its ninth straight annual loss.

The bottom line was hit by a £1.32 billion provision to cover litigation-and-conduct costs, including an undisclosed amount to settle a lawsuit over allegations the bank didn’t disclose its financial health ahead of an emergency capital raising in 2008.

The bank, which was subsequently bailed out and is now 73% government owned, also gave up on an expensive project to carve out and list its Williams & Glyn unit. The unit, which it has to dispose of by the end of 2017 to meet European state-aid rules, will instead be sold. Earlier this week, the bank received an offer from Banco Santander’s UK business to buy the unit, according to people familiar with the offer.

RBS also took a £450 million charge for selling payment-protection insurance products. Restructuring charges totalled £630 million in the half. Adjusted operating profit, which strips out provisions and restructuring costs, was £2 billion.

An earlier version of this article was published by The Wall Street Journal

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