RBS makes a loss of £1.5 billion in first half of 2012

The Royal Bank of Scotland (RBS) made a pre-tax loss of £1.5 billion in the first six months of 2012 influenced by the need to set aside £260 million to cover payment protection insurance (PPI) compensation and liabilities related to the IT meltdown in June.

The loss is also double the amount made in the first six months of 2011, up from £794 million. Overall revenues fell by 8 per cent to £13.2 billion.

RBS made an operating profit of £1.8 billion, similar to the figures covering the same period last year. Shares in the bank rose after the results were published and were up by 3.67 per cent by 1pm on Friday.

Presenting the results, RBS chief executive, Stephen Hester, said: “We are in a chastening period for the banking industry. The consequences of the sector’s past overexpansion are still being accounted for, probably with some way still to go.”

Mr Hester stressed the importance of relationships with customers. He said: “We want RBS to be a model for the way a bank relates to society. This means we aspire to serve our customers well with a dedicated staff who can feel proud of their work at RBS.”

Mr Hester said that three years into the bank’s recovery plan the bank could note the success of repaying all the government loans it was given during the credit crunch.

He praised the bank’s achievements in repairing its balance sheet but warned that “the process of combing through and rectifying the past can seem like going backwards for a while.”

The financial results reveal that RBS has set aside a further £135 million for PPI compensation, taking its total PPI bill to £1.3 billion and £125 million to cover costs relating to the IT problems, which Mr Hester called a “significant blot”, caused by a failed software update which left millions of NatWest and Ulster Bank customers unable to make or receive payments.

The bank set aside a further £50 million for compensation relating to the mis-selling of complex interest rate swap and hedging products to small businesses.

RBS’s high street bank made profits of £2 billion, down 12 per cent. Meanwhile profits from its investment banking operations fell by 21 per cent to £1 billion.

Mr Hester said that these past mistakes were not limited to RBS and that banking is in the middle of “a grim period for the reputation of our industry and for RBS within it.”

Mr Hester said: “it is no comfort that many of these action are shared across the industry.”

Mr Hester admitted that: “Most things that had gone wrong in the industry as a whole had also been present within RBS.”

Interviewed on BBC Radio 4, Mr Hester said that he expected the bank to be fined over the Libor scandal and revealed that a number of employees had been dismissed over their role in the Libor scandal.

Hester said: "The Libor situation is on our agenda and is a stark reminder of the damage that individual wrongdoing and inadequate systems and controls can have in terms of financial and reputational impact.

“This is the subject of ongoing regulatory investigation but our customers and shareholders should be in no doubt that we are taking it seriously. These issues together are hard to deal with but just as necessary a part of change from the past as the restructuring of our balance sheet."

Mr Hester said that lending to both individuals and businesses had increased and overall lending reached £49.2 billion, including £7.7 billion of mortgage lending.

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