RBS downbeat despite �15m profit

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Royal Bank of Scotland Group, which is 70%-owned by taxpayers, has reported a pre-tax profit of £15m for the first six months of the year.

The statement from RBS was downbeat, highlighting the £1bn loss after paying tax and dividends to the government and describing the results as "poor".

The investment banking division fared well, making about a £5bn profit, while high street banking had a harder time.

RBS also said it had written off £7.5bn of assets such as bad debts.

'Bad dream'

The bank's shares fell sharply on the back of the results, ending the day down 12.1%, although they had closed up 9.8% on Thursday.

"I think it's a reality check, frankly," said analyst Leigh Goodwin at Fox-Pitt Kelton.

"We were hoping, after the optimism of the last few days, that maybe with a good performance [in investment banking] and some stabilisation of credit, we might be feeling it was all a bad dream with Royal Bank. But we're back to reality."

Unlike Lloyds Banking Group earlier in the week, RBS did not say it had seen the peak of the write-offs, with chief executive Stephen Hester saying in a statement that they are "set to stay high for a while".

But Mr Hester later told the BBC he was confident of leading the turnaround at RBS.

"We are now confident we can rebuild RBS," he said, undertaking to make sure taxpayers make a profit on their investments in the bank within five years.

He also warned that "overall results may not substantially improve until 2011 and full recovery will take time.

There will be no miracle cure. There will be a couple of years of heavy lifting ahead, both for RBS and for the world economy."

Loans to businesses

BBC business editor Robert Peston pointed out that the total loans to small businesses had fallen £400m in the first six months of the year.

But Mr Hester denied that this meant the bank was failing to meet the undertakings it had given to lend more to small businesses after receiving the government bail-out.

"This seems a strange thing for a banker to say: unfortunately people are also paying us back and so more people in small-business-land paid us back this year than have taken new loans from us," he said.

"But 85% of all small businesses that asked us for a loan got it in the last six months."

RBS profits were boosted by a £3.8bn profit from buying back the bank's own debt when the banking crisis made it cheap.

Mr Hester said that he had reduced the size of RBS by 26% or £574bn so far this year, which has meant selling some businesses and cutting thousands of jobs.

Insurance scheme

In the whole of 2008, RBS reported the biggest annual loss in UK corporate history, losing £24.1bn, mostly due to a £16.2bn write-down of assets, including on the value of ABN Amro, which it bought in 2007.

It is less than a month since the body set up to manage taxpayers' stakes in banks, UKFI, warned that it would be 'challenging' to sell those stakes When will we get our money back?

The government took a £20bn stake in RBS in October to prevent its collapse.

And the stake is expected to increase when the new Asset Protection Scheme comes into force.

About 70% of the RBS assets affected by the write-downs are likely to end up being covered by the insurance scheme.

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