" It’s been a tricky but momentous year for RBS, in which the bank has put to bed many of the legacy issues which have hampered performance since the financial crisis. "
The bank’s total income rose 4.3% to £13.1 billion, while operating expenses fell 36% to £10.4 billion, largely driven by litigation and conduct costs falling from £5.9 billion in 2016 to £1.3 billion in 2017.
However an impending fine from the US Department of Justice is expected to impact the bank’s 2018 profits. Another hit to future profits will be the bank's large taxpayer stake, which it must sell off. RBS remains more than 70% owned by the taxpayer after its financial crisis bail-out.
Laith Khalaf, senior analyst at Hargreaves Lansdown, commented: "RBS has broken its ten year duck and managed to squeeze out a profit in 2017, thanks in large part to a big fall in litigation and conduct costs. This is a stay of execution rather than a pardon however, because the bank is still facing a multi-billion dollar penalty from the US Department of Justice, which is now going to impair profitability in 2018.
"The UK part of RBS is going great guns, and even the investment bank has held up reasonably well, considering a lot of the bad bank has been rolled into it. The bank’s capital position has improved again, though the prospect of a dividend still hinges on the final settlement with US authorities.
"The bank is now going to accelerate its restructuring which should deliver improved results, however it’s going to require an extra £1.2 billion of spending in the next two years.
"All in all, it’s been a tricky but momentous year for RBS, in which the bank has put to bed many of the legacy issues which have hampered performance since the financial crisis.
"Two very big shadows still loom over RBS. One is the impending fine from the US Department of Justice, which going to take a big slice out of the bank’s 2018 profits. The other is the large taxpayer stake, which has to be sold off at some point.
"That selling activity is going to put downward pressure on the bank’s share price, so until it’s materially completed, the market isn’t going to get too excited about RBS. Indeed with the price now standing at around half of the government’s breakeven point, the taxpayer’s still going to come out of this nursing a significant loss."
