Warren Allott/Agence France-Presse — Getty ImagesThe Royal Bank of Scotland said fines from its role in a rate-rigging scandal totaled $612 million.
6:03 a.m. | Updated
LONDON — The Royal Bank of Scotland signaled that it was moving closer to privatization on Friday as the bank reported its first quarterly profit since 2011.
The bank, which is 81 percent owned by the British taxpayer after receiving a multibillion-dollar bailout during the financial crisis, said net profit in the three months through March 31 was £393 million, or $611 million, compared with a £1.5 billion loss in the same period last year, beating analysts’ estimates. The firm benefited from a £249 million one-off gain on the value of its own debt.
Since 2008, the bank has been slashing assets, reducing costs and trimming its exposure to risky trading activity in a bid to bolster its profitability, and return taxpayer funds.
The firm, based in Edinburgh, plans to sell a stake in the Citizens Financial Group, the American lender it bought in 1988, while it also has announced the listing of part of its British branch network and has sold shares its local insurance unit, Direct Line.
The bank’s top executives said on Friday that the overhaul would be mostly complete by next year, which would allow the British government to start reducing its holding in the bank.
“What we want to do is have a business that’s performing well for its customers so we can write a prospectus with the government enabling the government to start selling shares from the middle of 2014,” the bank’s chairman, Phillip Hampton, said. “It could be earlier, that’s a matter for the government.”
The bank’s chief executive, Stephen Hester, told reporters on Friday that he had not held recent discussions with United Kingdom Financial Investments, the government entity created in 2008 to recover taxpayers’ investments in both the Royal Bank of Scotland and the Lloyds Banking Group, which had to be bailed out during the financial crisis.
Mr. Hester added that the initial price of the shares may be below what the British government paid for them in 2008, but added that he expected the average share price to be above the government’s 407 pence-a-share break even point.
“Because of the size of the state shareholding in R.B.S. and Lloyds, selling these shares will take a number of years,” Mr. Hester said on Friday. “The average sale price will likely be in excess of what was paid.”
Shares in the Royal Bank of Scotland fell 6.4 percent, to 288 pence, in morning trading in London on Friday.
As part of its overhaul, the British bank said that it had continued to reduce its investment banking division in the first quarter of the year, while also setting aside less money to cover delinquent loans. The reduction in its overall operations hit the firm’s operating profit, which fell 28 percent, to £826 million, in the first quarter of the year compared with the same period in 2012.
After an international expansion before the financial crisis, the bank is refocusing its efforts on retail and commercial banking, which generates the majority of the firm’s quarterly pretax earnings.
“The core franchise value of one of the dominant U.K. retail and wholesale banks is coming to the fore,” Sanford Bernstein analysts said in a research note to investors on Friday.
The bank’s chief, however, warned that the sluggish British economy still weighed on earnings, and that the firm’s reorganization was not yet complete.
“We are running hard to stand still,” Mr. Hester said. “There’s no momentum in the profits until the economy recovers.”
Article source: http://dealbook.nytimes.com/2013/05/03/rbs-prepares-to-sell-shares-as-net-profit-surges/?partner=rss&emc=rss
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