RBS reveals larger losses than feared after forex rigging charges hit

Royal Bank of Scotland made a £446m loss in the first quarter of the year, more than double what had been feared as it was hit by £453m of restructuring costs and set aside £856m for litigation and conduct charges.

RBS had been expected to report an attributable loss of £176m in the three months to 31 March after the gigantic £5.8bn losses of the final quarter of 2014. In the first quarter of last year it made a £1.2bn profit.

Provisions included £334m for forex rigging, £100m for payment protection insurance (PPI) mis-selling, £257m for other 'customer redress' and £176m for other litigations.

The bailed-out banking group raised adjusted operating profits 16% to £1.6bn on total income up 12% £4.3bn from the fourth-quarter but 14% lower than the first quarter of 2014, reflecting the reduction in the scale and risk profile of the investment banking (CIB) arm.

RBS claimed it had made "good progress towards its stated 2015 targets" and said it remained "committed" to £800m of cost reduction across the full year.

Its capital position was stronger by the period end, with a common equity tier-1 (CET1) ratio of 11.5% at the period end, up 30 basis points from the end of 2014.

Risk-weighted assets (RWAs) were down 2% from the end of 2014 to £349bn, with £102.8bn in CIB, and with the total said to be "on track" to be less than £300bn by the end of 2015.

Personal banking operating profits were up 10% sequentially driven by a very strong performance in cutting operating expenditure thanks to recent restructuring.

A quick reaction note from Bernstein noted that the personal banking saw cost savings more than offset a 5% decline in income driven by a shift from unsecured to mortgages and drop in fee income.

UK commercial saw loan growth up roughly 4% - the first time in the last five years.

The broker praised the "strong beat" on operating expenses - down 15% year-on-year and 6% below consensus at £2.78bn - in "another positive sign management is driving towards their cost target".

"Restructuring costs amounted to £453m – below our expectation of £1.1bn for the quarter. We have felt that management's restructuring cost guidance – both on the core business and Investment Bank – has significant room for lower revisions. Q1 was one data point confirming that."

On the writebacks and impairments the broker wrote: "The tailwinds from Ireland continue especially on the back of important price increases for the commercial real estate market. The RCR [bad bank] writeback trend continued, amounting to £109m. Ulster net impairments came in at nil.

"Going forwards, we expect a further pick up in writebacks as NPLs [non-performing loans] drop off and residential prices resume their move up. We also expect writebacks will continue to be lumpy, adding up to a total of [approximately] £1.4bn of net write-backs in the next few years with the continued Irish recovery momentum."