RBS profits drop on US settlement, but bank unveils first dividend in a decade

Royal Bank of Scotland has seen bottom-line profits drop after being hit by a major settlement with US authorities.

But the lender announced its first dividend in 10 years as it starts to put some of its legacy issues to rest. The high street bank - which is still around 62% owned by the taxpayer - reported £888 million in attributable bottom-line profits for the half year to June 30, down from £939 million a year earlier.

It was hit by £801 million in litigation and conduct costs over the period, helping to cover the 4.9 billion US dollar (£3.7 billion) settlement reached with the US Department of Justice (DoJ) earlier this year over claims that it mis-sold mortgages in the run-up to the financial crisis.

Total income over the period dropped from £6.9 billion to £6.7 billion.

The settlement with the the DoJ has opened the door for a shareholder payout, with RBS announcing its first dividend in a decade.

The interim dividend will be 2p per share, though the timing of the payout is subject to the finalisation of its US settlement.

RBS chief executive Ross McEwan said: We are pleased with the progress we've made in the first half of 2018 and see these as a good set of results in a more uncertain and highly-competitive environment.

We are also pleased to announce an intention to pay our first dividend in 10 years, subject to a final settlement with the DoJ.

Our sector is undergoing significant change and we are positioning ourselves well to compete.

We still have a lot more to do to achieve our ambition of being the best bank for customers in the UK and Republic of Ireland.

However, with our major legacy issues largely behind us, we are able to fully focus on closing this gap.''

RBS shares were one of the best performers on the FTSE 100 after rising more than 2.6% in morning trading.

Mr McEwan said there may still be scope for branch closures this year, after announcing it would shutter 162 branches across England and Wales earlier this year.

That was on top of 259 separate closures announced last autumn.

The only piece that we haven't concluded is what was going to be the Williams and Glyn branch network and we're just working through that at the moment... and we're looking to have that concluded by the year end,'' Mr McEwan explained.

That network was originally meant to be sold off as part of competition responsibilities linked to its £45 billion Government bailout during the financial crisis, but those plans were scrapped in favour of an alternative remedies fund meant to boost competition in the UK banking sector.

RBS also experienced a fall in its net interest margin - a key measure for banks - from 2.18% to 2.02%, blamed in part on Brexit.

You're seeing the economy is running now at probably the slowest rate for the last nine to 10 years and that really is around (Brexit) uncertainty,'' Mr McEwan said.

The other thing that is happening is the mortgage market is very very competitive... so that is also bearing down on our net interest margin and compressing it.''

Brexit has also forced the bank to make contingency plans that will see it serve EU clients of its markets division - as well as its western European large corporate clients business - out of Amsterdam.

Around 150 people will run those operations, but customers have yet to be transferred.

Mr McEwan assured on Friday that he intends to stay at the bank through to 2020, despite recent speculation that he was preparing an imminent departure.