RBS reports surprise rise in profit

Robyn Hall

July 25, 2014

The bank said it had set aside much less money for bad loans than expected – down to £269m from £2.15bn.

Despite better than expected results, RBS chief executive Ross McEwan warned of “bumps in the road ahead of us.”

Andre Spicer, professor of organisational behaviour at Cass Business School, said: “The rise in profit at RBS is a man bites dog story.

“We are used to hearing about big banks disappointing. So it is surprising to see expectations being exceeded.

“The big question now is why RBS has exceeded expectations. Part of it is the skill of senior executives, but a big part is luck. Some factors might be due to the actions of senior executives, such as aggressive cost cutting.

“The bank has axed 8000 staff in the last year which has cut costs significantly. The other factors are more just luck.

“For instance, the bank has reduced its impairment losses from £1,881 million to £269 million. This is partially because assets on the bank’s balance sheet which looked toxic a year ago look less noxious today. As the wider economic tide has risen, so too has the ‘fair value’ of these assets.

“RBS seems to be making progress in making itself a smaller and safer bank.

“It has increased the amount of tier one capital it holds and got out of many of the riskier operations. What remains to be seen is whether it is transforming itself into a more sustainable bank.

“The big question is whether the bank can hold on to its customer base with continued aggressive cost cutting, heightened pressure for increased competition in the retail banking sector, and the rise of challengers ranging from peer to peer finance to new high street banks.”

Sign up to our daily email