RBS to report £343m profit as investors see 'light at the end of a long tunnel'

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Royal Bank of Scotland is expected to report a second consecutive quarter in the black next week, even as it stomachs nearly half a billion in extra restructuring and misconduct costs.

A consensus of City analysts forecast that the lender, which is still 72% owned by the taxpayer, will report a £343 million profit for the three months to June 30, following on from a £259 million profit in the first quarter.

Graham Spooner, investment research analyst at The Share Centre, said investors are beginning to "see light at the end of what has been a very long tunnel".

However, RBS is also predicted to detail £248 million in conduct and litigation costs and £228 million in restructuring charges.

When added to £577 million of restructuring costs booked in the first quarter, it would take the total for the six months to June to over £1 billion.

The group has racked up several billion in litigation and conduct costs since it was rescued by the Government at the height of the financial crisis.

Earlier this month, RBS agreed a £4.2 billion US settlement over claims it mis-sold toxic mortgage bonds in the run-up to the crisis, and it will take a £151 million charge in its second quarter as a result of the deal.

However, it is yet to reach a separate settlement with the Department of Justice (DoJ), which is expected later in the year, and the bank may need to set aside more cash to settle outstanding claims.

Laith Khalaf, senior analyst at Hargreaves Lansdown, said: "The hills are alive with the sound of lawyers cashing cheques.

"Much will depend on the timing, and the extent, of any action from the US Department of Justice, which is an unpredictable amount of heartache waiting for RBS shareholders in the not-too-distant future."

Chief executive Ross McEwan has signalled that the bank could return to a full-year profit by 2018, but forecasts suggest that it will remain in the red this year.

Chancellor Philip Hammond made the stark admission in April that the Government is prepared to sell its stake at a loss to the public purse, and Mr Khalaf said that RBS still faces "considerable headwinds".

He added: "When it comes to reaching the breakeven point for the taxpayer, the share price still has a mountain to climb."

The Government bought its 72% stake in the bank for £45 billion in 2008 at £5.02 a share. Shares are now worth around half that.

The Treasury also recently announced that RBS will avoid being forced to sell off its Williams & Glyn branch network by doling out £835 million to help boost competition among UK banks.

It follows a joint review by the European Commission (EC) and the Treasury, which have put forward an "alternative remedies package" that will help fulfil RBS's state aid obligations following its bailout.