The Press Association: RBS unveils £10.3bn profits

The Press Association: RBS unveils £10.3bn profits: "RBS unveils £10.3bn profits

RBS unveils £10.3bn profits

Feb 28, 2008

Royal Bank of Scotland has unveiled a £2.5 billion hit from the credit crunch - but still hiked annual profits to more than £10 billion.

The UK's second largest bank said operating profits rose 9% to £10.3 billion in 2007, despite the turmoil in financial markets.

The company wrote off £1.6 billion in losses with a further £900 million-hit for ABN Amro, the Dutch bank bought by a RBS-led consortium last October, chief executive Sir Fred Goodwin said.

The group has an additional £2.5 billion in exposure to the specialist insurers underwriting the group's investments which have also been hit by the crunch, Sir Fred added.

Meanwhile RBS's insurance business - owner of the Churchill, Direct Line and Privilege brands - was hit for £274 million by the impact of last summer's floods, with operating profits slipping 9% to £683 million.

Despite the setbacks from last summer's turbulence and the crisis in the US sub-prime mortgage market, RBS's results bring the profits from four of the UK's "big five" banks to £27 billion so far. With just HSBC - the UK's leading bank - left to report, profits are set to at least match last year's £37.2 billion combined earnings.

Sir Fred said prospects for 2008 were "difficult to predict as ever" but added the bank had begun the year with "real momentum" following the deal for ABN. The RBS team beat off a rival bid from Barclays to win the battle for the Dutch bank last October with a 71 billion euro (£54.1 billion) bid and said it has identified a further 1.6 billion euro (£1.2 billion) in cost savings from the deal over the next three years.

There have been concerns in the City that RBS overpaid for the Dutch bank and questions over the bank's capital position following its investment losses and the acquisition. But Sir Fred said the ABN deal gave the group the "big attraction" of increased exposure to fast-growing economies in Asia. The bank's capital position remained within target ranges, while it also lifted its annual dividend 10%.

Although the performance was held back by the credit crunch - hitting results at its investment banking division - the bank partly offset the losses with the sale of businesses such as utility Southern Water last year.

The bank's more cautious approach to lending in the worsening economic environment also saw overall bad debt losses fall 1% to £1.87 billion. RBS, which owns the NatWest bank, added that retail banking profits rose 10% to £2.47 billion with deposit balances up 9%. The bank opened more than 975,000 personal current accounts last year. UK business banking also lifted operating profits 11% to almost £2 billion, offsetting the earnings decline elsewhere in the business.