RBS pays first dividend in 10 years despite fall in Q2 profits

This is despite seeing a 50% fall in operating profits in the second quarter to £613m, as the bank made a further £1bn provision relating to the US Department of Justice fine for mis-selling RMBS.

Excluding this and other conduct and litigation charges, profits rose 11% to £1.4bn.

Nicholas Hyett, equity analyst at Hargreaves Lansdown, commented: “These numbers are pleasantly positive at pretty much every level. Income is ahead of expectations, as are earnings, while the bank is overflowing with capital. That’s spurred it into (tentatively) announcing an interim dividend for the first time since 2008. We’re not afraid to admit it’s earlier than we’d expected, but it’s none the less welcome for that.

"It would be easy to lose yourself in the good news today, but investors should keep half an eye on the challenges ahead. Net interest margins are under pressure as competition rises, and there’s still the issue of the government’s 62% stake to be dealt with.

"However, for today at least CEO Ross McEwan will be feeling pretty untouchable – the bank’s back in profit, the government’s reducing its stake and restarting the dividend was the last major milestone the CEO set himself. It’s an impressive performance.”

Helal Miah, investment research analyst at The Share Centre, added: “RBS, the majority state owned bank, reported a very encouraging set of second quarter results which built upon the first quarter numbers and showed good signs of progress. Operating profits in the second quarter came in at £613m, some way behind the first quarter figures but well ahead of expectations. There were still some provisions made to the accounts for the US Residential Mortgage Backed Securities miss-selling scandal while increased competitiveness and liquidity continued to dampen the net interest margin which came in at 2.01%. The Tier 1 capital ratio improved to 16.1% after a £2bn pre-tax pension contribution.

“But the most important sign of an increased health of the bank came in the form of the announcement of the first interim dividend since the financial crisis of 2pence per share, this combined with the better than expected profit figures has contributed to the share price rising in early morning trading by a few percentage points. The reinstatement of the dividend will not only give existing shareholders some confidence but also to the large number of fund managers who could not invest in them previously due to the lack of any income and it will make the governments task of offloading its roughly 62% holding onto the market a little easier.

“However, this does not mean it is going to be all plain sailing for RBS from here, the group still has many legacy issues to overcome and restructuring is still ongoing including many assets still left to dispose. The dividend hike for the time being means that the income is still very modest and we therefore feel that it is a share for investors seeking capital growth and a longer term recovery in the share price for those willing to accept a medium level of risk.”