The UK-listed group said its private banking arm reported a rise in profits, before impairments, in the six months to 30 June compared with a year earlier.

UK-listed Royal Bank of Scotland said its private banking arm that contains Coutts logged an operating profit before impairment losses of £71 million ($120.7 million) in the three months to 30 June, down from £74 million in the previous three months.

However, over the six months to 30 June this year, operating profits on the same basis were £145 million, up from £95 million a year earlier, the UK government majority-owned firm said in a statement today.

For the entire banking group, operating profit before impairments were £2.97 billion in the six-month period to end-June, up from £2.858 billion on a year before. The profit attributable to ordinary and B shareholders almost trebled to £1.425 billion in the half-year period to 30 June, up from £535 million a year earlier.

The sharp rise in profits sent RBS share prices soaring; they were up 11.9 per cent around 14:00 London time.
“It's hard to tell whether the RBS share price jump today is more about relief or optimism. The former is about fewer fines, fewer losses on loans, and fewer costs in a shrinking business and possibly dividends for shareholders. And there's the rub, owning shares (as opposed to interest bearing debt) should be about optimism and long-term growth in dividends,” Pete Hahn, of Cass Business School in London, said of the group results.

He continued: “Few would argue that RBS' retail and corporate bank had efficiencies to be gained and cash flow that might be converted to dividends; yet like most banks, RBS' cost of equity remains stubbornly and appropriately above its ability to provide a return on that equity. For shareholders, current improvements should mean dividends in the medium term but a recognition that RBS may lack any merit for new investment and delivering any long-term dividend growth - not good.”
Christopher Wheeler, analyst at Mediobanca in London, was cautious about the private banking results for RBS: "I would say steady results. Coutts remains a conundrum - a high gross margin matched by a high cost/income ratio; lots of lending (to boost revenues....62 per cent of revenues in H1 in NII) and too much infrastructure."
On track

“RBS remains on track to deliver its target of £1 billion cost reductions in 2014. Restructuring costs are expected to be higher in the second half of 2014 as the pace of activity to reduce costs in later years picks up. A restructuring charge of around £1.5 billion is expected for 2014, with overall restructuring costs still expected to be around £5 billion over 2014 to 2017 as the change agenda across the bank from economic, legal and regulatory perspectives remains very full,” the bank said.

The cost/income ratio of the private banking unit was 73 per cent at the end of June, narrowing from 82 per cent a year before; total costs were £397 million in the six months to the end of June, narrowing from £431 million a year before, RBS said.

Net interest income was £344 million at 30 June, up from £317 million a year before.

Customer deposits, excluding reports, were £35.9 billion at 30 June, down from £36.6 billion at 31 March.
(This item has been updated for share price, analyst reaction.)