Royal Bank of Scotland profits rise 11%

Another High Street Bank releases forecast beating financial results.

Royal Bank of Scotland, which is locked in a takeover battle for ABN Amro, today beat City forecasts with an 11% rise in profits and 25% dividend hike.

That means Britain’s “Big Five” banks – HSBC, RBS, Barclays, HBOS and Lloyds – have made combined profits of £21bn in the first half of the year, higher than experts predicted.

Underlying operating profits at RBS climbed to £5.1bn in the six months to June 30, up from £4.6bn a year ago.

RBS said it paid out approximately £81m to settle claims for unauthorised overdraft fees. That compares with a £87m payout at Barclays, £79m at HBOS, £116m at HSBC and £36m at Lloyds TSB, bringing the total payout at the Big Five to £399m.

RBS has also been hit by insurance claims after heavy floods in June and July, which are expected to total in the region £250m. It is Britain’s second-largest provider of home insurance after Aviva’s Norwich Union. June’s flood claims are estimated to have cost its Direct Line insurance firm around £125m, pulling down profitsthere by 27%.

Norwich Union said yesterday that the floods would cost it £340m and that premiums would rise by 10% on average as a result.

RBS shares reversed earlier gains and were down 4.5p to 587p this morning.

Meanwhile, RBS’s investment banking arm, Global Banking & Markets, put in a strong performance with profits up 19%.

The group’s Citizens business in the US saw profits fall by 7% to £752m because of the weak dollar.

Sir Fred said: “Some of the structural headwinds we have experienced in retail markets, Citizens and RBS Insurance have begun to abate.”|

Retail banking profits climbed 10%, and RBS said it believes that personal bad debts have now peaked.

“Our early action to tighten lending criteria and reduce activitiy in the direct loan market is now reflected in falling arrears and a 7% reduction in retail impairment losses.”

Sandy Chen, analyst at Panmure Gordon, said: “Good results largely – notable for what they didn’t have, i.e. US sub-prime and related credit derivatives worries. Overall earnings growth – with the exception of Citizens – was solid.”

The figures come a day after Barclays Bank, RBS’s rival in the race to acquire ABN, reported a 12% rise in profits to £4.1bn.