There were a lot of numbers in Royal Bank of Scotland's interim results statement, some of them bad, but most of them good or at least indicative of progress.
Technically speaking, the part-nationalised lender made a loss before tax of £1,505m in the first half of 2012, versus a loss of £794m at the half-way point of 2011.
Ah, yes but ...As per usual, there was a bewildering number of adjustments made to arrive at the profit figure, the biggest of them being a £2,974m charge taken to reflect the cost to the bank of buying back at current rates all the debt securities it has out there in the market.
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Last year, the "own credit" downward adjustment was a mere £236m and, somewhat bizarrely, Royal Bank of Scotland (RBS) Chief Executive Officer Stephen Hester hailed the enormous increase in this paper-loss as some sort of positive indicator of the progress the bank has made, "as our debt now trades at tighter margins."
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Stripping out the own credit adjustment, the group would have made a pre-tax profit of £1,469m and a post-tax attributable profit of £287m. Somewhere in among all that mess is a money-making business, apparently.
Like many of its peers, RBS is still topping up the pot of money set aside for claims relating to the payment protection insurance (PPI) mis-selling scandal. RBS set aside an additional £260m for PPI claims in the first half of 2012, a much lower figure than the £850m provision made in the first half of last year.
Core: what a scorcher!RBS likes to divide its results in to two parts: the Core business, which it wants to keep, and the Non-Core business, which is generally the parts of the bank which brought the business to its knees (and then had it lying prone) in the bad old days of the credit crunch.
The Core business saw total income slide to £13,299m in the first half of the year from £14,494m the year before. In the second quarter, total income fell to £6,437m from £6,862m in the preceding quarter and £6,816m in the corresponding quarter of 2012.
Half-year operating profit before impairment losses was £4,738m, versus a profit of £5,652m the year before. Again, the second quarter performance was a little down on the first quarter: £2,246m versus £2,492m in the first quarter. Second quarter operating profit before impairments was also down on the £2,566m in the same period of 2011.
Even after chunky impairment losses, the Core operating profit was £3,185m, down from £3,927m in the first half of last year, but not to be sneezed at.
Second quarter operating profit of £1,518m was down from £1,667m in the preceding quarter and £1,703m the year before.
Customer deposits grew by £7bn from a year earlier, with the credit rating downgrade suffered during the second quarter having little impact on the willingness of punters leaving their money in the care of RBS. The group loan:deposit ratio improved further to 104%.
Detoxifying the Non-CoreThe Non-Core business made an operating loss of £1,351m, but the good news is that this an improvement on the loss of £1,961m in the first half of last year.
The second quarter loss of £868m was more or less unchanged from a year earlier, but fatter than the loss of £483m in the first quarter of this year.
One of the main parts of the current management's remit is to clean up the bank's balance sheet, so that the bank moves out of the category of "too big to fail", and it is making brisk progress on this front. Non-Core third party assets were down £22bn in the first half to £72bn, and the group has further revised down its year-end targets for these assets to to £60bn - £65bn.
The Core Tier 1 ratio for the whole group - a key measure of balance sheet strength - improved to 11.1%, with a net £4bn reduction in risk-weighted assets in the first half of the year despite increases to regulatory risk-weightings.
Excluding capital relief from the Asset Protection Scheme (APS), the Core Tier 1 ratio was 10.3%. The group intends to exit the APS by the end of the year, subject to Financial Services Authority approval. The exit has been foreseen for some time but would still mark a significant milestone on the road from perdition.
LIBOR fiddlers shown the doorHester would be justified in laying the blame for almost all of the bank's current problems at the door of previous management who, quite possibly, are now living in Antarctica under assumed names, such is the low regard in which they are held by Britain's tax-paying community.
However, he did issue an apology for a systems failure in June which put "a significant blot on RBS's reputation". The group set aside £125m for costs arising from the incident, principally to compensate angry customers.
"We are working through a detailed root cause investigation to assess what improvements need to be made to ensure these types of issues do not re-occur. While we have significantly increased technology spend over the past three years, there is clearly more we need to do to ensure reliability for our customers. I know our customers expect and deserve better and we are determined to learn the lessons of this incident and make the necessary improvements," Hester pledged.
On the subject of the much-publicised LIBOR (interest rate) fixing scandal, Hester said "the LIBOR situation is on our agenda" and, returning to the theme of reputational damage, Hester termed it "a stark reminder of the damage that individual wrongdoing and inadequate systems and controls can have."
RBS continues to co-operate fully with investigations by various governmental and regulatory authorities into its submissions, communications and procedures relating to the setting of LIBOR and other interest rates. The group has dismissed a number of employees for misconduct as a result of its investigations into these matters.
The group has not made any provision for fines that might, or might not, be levied as a result of the bank's involvement in the scandal.
Clearly, Hester's remit to "clean house" has taken him and his management team into areas they had not expected to visit when they signed up for the job, but the City seems to think the bank's leaders are generally doing a bang-up job.
"It's not all bad. While MPs and regulators focus their energies on sound-bites and gesture-politics, RBS management continues to make useful progress," said Investec.
"RBS is more than capable of responding to any up-tick in credit-worthy demand for finance. Moreover, 'underlying' Operating Profit of £0.7bn in Q2 2012 just about met our (and consensus) expectations. UK Retail/UK Corporate continue to perform well," the broker added.
Earlier this week there were reports that the government, exasperated at the banking industry's reluctance to lend to British business, was pondering buying up the 17% or so of RBS which it currently does not own. If the reports are true, then the price just got dearer, with the shares moving up to 216.7p in the morning session from 204.5p overnight.
