Like most other UK banks the Royal Bank of Scotland (RBS) share price has been feeling the effects of the uncertainty over Brexit, which has characterised the last three months or so, despite being able to boost its profitability.
The announcement of the resignation of CEO Ross McEwan in Q1 slightly overshadowed the numbers for RBS earlier this year. With McEwan now confirmed as NAB CEO, the focus will be on who replaces him with NatWest Holdings deputy CEO Alison Rose a key contender.
In its first quarter of 2019 the bank reported an operating profit of just over £1bn, beating expectations by around 10%, even though revenues were slightly below estimates at just over £3bn.
Overall profits were still slightly lower from the same period last year, coming in at £707m compared to £808m. Given the weakness in the UK economy in Q2, it was expected that this quarter would be equally as challenging for RBS, particularly since its net interest margin is much lower than its peers.
RBS share price: today's numbers
Today’s Q2 numbers appear to have confounded those fears, with operating profits rising to £1.68bn, and total income rising to £4.08bn. These better-than-expected numbers have driven overall profits to £1.3bn, well above the £96m we saw in the same quarter last year, and also above Q1’s numbers when the UK economy was much more resilient. However, these positive numbers don't seem to have boosted the RBS share price much this morning.
The bank is now clearly benefitting from having put its legacy issues well behind it as it looks to support the UK economy with an increase in overall lending of 2.5% on an annualised basis to £287bn.
Personal banking was mixed, with net loans to customers increasing, however total income was lower as a result of narrower margins, with new mortgage lending at £6.7bn for the quarter.
Institutional and Nat West Markets were able to show some decent income growth with Nat West Markets turning an operating profit of £362m, compared to a loss of £62m in Q1, and a loss of £52m in the same quarter a year ago, though much of this is likely to have been as a result of the completion of the recent merger with Saudi bank Alawwal.
There has also been a significant decrease in operating expenses of £635m, compared with the first half of 2018, as a result of this, with total costs of £173m removed. This too, however, has not managed to lift the RBS share price.
RBS full-year outlook remains unchanged
Management kept their full-year outlook unchanged but warned that the continued economic and political uncertainty was likely to mean it would not meet its return on equity targets of 12% in 2020, but did announce a 12p special dividend as well as a normal dividend of 2p, a welcome windfall of about £1bn for UK taxpayers who still have a 62% stake in the bank.
All in all, a decent set of numbers, which may have been flattered by the Alawwal deal, however given the concerns about the outlook, the RBS share price has come under pressure on a day that the markets look distinctly shaky.