Royal Bank of Scotland loss narrows in 1Q; bad loan losses ease

Royal Bank of Scotland 1Q loss narrows

LONDON — Part-nationalized Royal Bank of Scotland on Friday reported a narrower loss in the first quarter as the global economic recovery led to a reduction in impairments on bad loans.

RBS reported a net loss of 248 million pounds ($363.5 million) for the first three months of the year, compared to 902 million pounds a year earlier.

Impairments for bad loans fell from 2.86 billion pounds to 2.68 billion pounds. Income was down 4.4 percent at 8.9 billion pounds.

The government owns 83 percent of RBS following a bailout at the height of the credit crisis.

RBS shares closed down 5.7 percent at 45.50 pence on the London Stock Exchange.

“Despite the incrementally better operating performance seen in Q1 2010, the Group continues to generate attributable losses, and will, we believe, continue to do so in 2010,” said Ian Gordon, analyst at BNY Exane Paribas.

Danny Clarke at Shore Capital observed that “RBS’ recovery remains in early stages,” and Jonathan Jackson at Killik & Co. warned that “RBS remains a very high-risk investment.”

RBS chief executive Stephen Hester said the pace of global economic recovery and looming changes in regulation were key unknowns.

“Global recovery is helping impairments fall a little faster than we expected, though lumpy events may well interrupt that trend,” Hester said.

“Our medium-term targets already factor in a normalization of credit conditions.”

Asked about the inconclusive result of the British election, with no party apparently destined to claim a majority, Hester said in a conference call with journalists that “all that matters to us is whether there is strong stewardship of the economy.”

Group Finance Director Bruce van Saun said RBS’ exposure to Greece was about 1.5 billion pounds, of which 450 million pounds was at risk.

“Overall the exposure is rather moderate and manageable,” van Saun said.

The bank said that it still faced substantial risks as it restructures and is weaned off fiscal and monetary support.

“We do not have to look further than southern Europe to see that substantial risks remain in the banking system, which are likely to lead to volatility in the share prices of those banks like RBS and Lloyds Banking Group that are in the midst of massive restructuring programs,” said Nic Clarke, analyst at Charles Stanley & Co.

He rated the shares as a cautious “hold.”