RBS Stock Surges Following Earnings Report

Royal Bank of Scotland stock jumped by over 10% after the lender, which is owned by the government, showed signs it still had great potential with a profit before taxes that was much better than was expected driven by a drop in charges for bad loans.

On Friday while announcing its results from the first quarter, the bank noted that impairments had dropped by 65% during the first quarter of 2014, marked by improvement at its subsidiary Ulster Bank, which reported its first operating profit for a quarter since 2009.

One analyst said the trends for the bank are headed in the right direction notably impairments and capital.

However, New Zealander Ross McEwan who took the reins as CEO at RBS last September, warned that the first quarter positive performance was not likely to be sustained during the rest of 2014.

McEwan said the heavy restructuring had not yet been started, so costs remain lower than what they probably will be over the last three quarters of the year.

Nathan Bostock, the finance director who is leaving and set to have Even Stevenson take his place, also cautioned that impairment for loans and provisions for misconduct like payment protection insurance could be higher during the final three quarters of 2014.

Profits that were pre-tax were 1.6 billion pounds for the first quarter of 2014 ending March 31, which compared to 826 million pounds during the same quarter one year ago.

Revenues were down by 2% due to a shrinking division of investment banking.

The core equity tier one ratio at RBS a key measure of capital was 9.4% at quarter’s end, up from 8.6% at the end of last year.

The performance is similar to the improvement at Lloyds Bank, another state backed lender, which on Thursday reported profits up over 20%.

The government has said it believes RBS is well behind Lloyds on its road to a recovery. RBS’s attempt for more bonus cap for staff to 200% of salary instead of 100% that the EU set, was opposed by UK Financial Investments.