LONDON – Royal Bank of Scotland Group PLC said first-half profit almost doubled as impairment charges fell and forecast it will meet a cost-cutting target of 1 billion pounds ($1.7 billion) in 2014. The shares surged the most in almost three years.
Britain’s largest state-owned lender said it expects pretax profit of 2.65 billion pounds ($4.5 billion), up from 1.37 billion pounds ($2.33 billion) a year earlier, according to a statement on Friday. The earnings mark RBS’s second-consecutive profitable quarter. Operating profit is seen jumping to 2.6 billion pounds ($4.41 billion) from 708 million pounds ($1.2 billion), according to the results released a week early.
CEO Ross McEwan, 57, who took over from Stephen Hester in October, has set up an internal bad bank, combining divisions and scaling back the investment bank as he strives to shore up earnings after last year reporting the biggest annual loss since 2008. Strengthening economic growth in the U.K. and Ireland boosted the value of its assets and helped reduce impairment costs.
“These are strong results, which should lead to consensus upgrades for 2014-2015, but limited upgrades beyond this point, as the beat is mainly due to loan loss reversals which is not sustainable,” Citigroup Inc. analysts led by Andrew Coombs, who have a sell recommendation on the stock, said in a note to clients on Friday. “We therefore view today’s share price reaction as overdone.”
The stock jumped as much as 15 percent, its biggest intraday gain since October 2011. The shares were up 14 percent at 373.5 pence ($6.34) as of 12:02 p.m. in London trading. RBS shares have climbed 11 percent this year, the only bank to gain in the period among Britain’s five-biggest lenders.
The government owns 80 percent of RBS and the stock is still below the 407 pence ($6.91) at which taxpayers would break even. The value of the U.K.’s stake increased by about 4 billion pounds ($6.8 billion) on Friday, according to data compiled by Bloomberg.
“We are actively managing down a slate of significant legacy issues,” McEwan said. “These include significant conduct and litigation issues that will hurt our profits in the months and years to come. There are bumps in the road ahead.”
McEwan, who was previously head of the bank’s retail division, said it would be “very optimistic” to expect RBS to pay a dividend anytime soon, the CEO told analysts on a conference call Friday.