Royal Bank profits jump

August 7, 2001 Posted: 0833 GMT

LONDON (CNN) -- Royal Bank of Scotland, the UK's No. 2 bank, posted a 42 percent rise in first-half profit as its takeover of NatWest boosted business.

The Edinburgh-based bank said on Tuesday first-half net income rose to £1.1 billion ($1.5 billion), or 62.6 pence per share, from £779 million, or 46.1 pence a share, in the same period a year ago.

The bank reported its results on a pro-forma basis - as if its £21 billion takeover of NatWest had already been completed on January 1 last year instead of March 6, 2000.

Royal Bank said half-year profit before tax, goodwill amortisation and integration costs rose 37 percent to £2.75 billion, also on the basis that the NatWest takeover had fully contributed.

The earnings are in line with the bank's own forecasts, issued last month when it announced the acquisition of Mellon Bank of the U.S. But the Royal Bank on Tuesday declined to give an outlook for the rest of the year.

'Wide range of economic scenarios'

"Clearly we are faced with a wide range of economic scenarios," said Chairman George Mathewson. "We consider that it would be inadvisable for us to assume that any one outlook will prevail."

Royal Bank is the fourth leading UK bank to report in the past two weeks. On Monday, HSBC, the UK's largest, posted a 4 percent rise in net profit but made cautious comments about the likely impact of the economic slowdown.

Barclays, (BARC) ranked No. 4 in the UK, last week announced a 1 percent fall in net income. But it outperformed its closest rival Lloyds TSB (LLOY)), the UK's No. 3 bank, which posted a 12 percent fall in first-half profit on July 27, citing cut-throat competition in UK financial services.

Royal Bank's combination with NatWest created a UK retail banking powerhouse, providing financial services from insurance to mortgages.

The bank said net interest income rose 13 percent to £3.25 billion as loans to customers, excluding mortgages, rose 18 percent in the year's first six months to £19 billion.

Mortgage lending grew 8 percent to £27 billion. Income from general insurance premiums jumped 34 percent to £601 million, the bank said. But it had to increase the amount it set aside to guard against losses from bad loans by 19 percent to £369 million.

Royal Bank acquired the far larger NatWest in March last year amid a wave of consolidation in European banking, beating a bid from rival Bank of Scotland (BSCT) and overcoming NatWest's determined defence.

It said the combined bank had cut staff by 4 percent, or 3,600 people, leaving a current workforce of 95,600. Integration costs during the six months amounted to £361 million.

The bank said goodwill relating to the NatWest takeover – or the amount Royal Bank paid above the value of NatWest's assets – will be written off over 20 years. The cost of the write-off in the first half of the year amounted to £318 million.

Royal Bank is also expanding its business in the U.S. Major consolidation moves in the UK banking industry have come to a halt for now, following the rejection by competition authorities of a recent bid by Lloyd's TSB for mortgage bank Abbey National.

On July 17, Royal Bank announced it had agreed to buy the retail banking unit of Mellon Financial for $2.1 billion and will merge the Pittsburgh-based Mellon (MEL: Research, Estimates) with its U.S. subsidiary, Citizens Financial Group.

Royal Bank shares (RBOS) were little changed at 1,642.25 pence after the results were announced. The stock closed down 3 percent in London on Monday.

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