Part-nationalised lender Royal Bank of Scotland posted a small first quarter loss as strong growth at its investment banking arm mitigated the impact of impairment losses and credit market writedowns totalling 5 bln pounds.
Britain's second biggest bank by market value, now 70 percent owned by the government, made a loss of 44 million pounds ($66 million) for the three months to March 31, compared with a 479 million pound profit a year earlier, RBS said on Friday.
The Edinburgh-based bank said a fourfold rise in bad debts to 2.86 billion pounds as the souring economy took its toll on customers was counterbalanced by a near-doubling of investment banking revenues to 4.27 billion pounds.
"They had a strong trading quarter in the investment bank, probably stronger than people had thought. The impairments probably weren't as bad as expected either," said Sanford Bernstein analyst Bruno Paulson.
RBS shares were up 11.8 percent at 46.5 pence by 0925 GMT, making them the biggest riser in the FTSE 100 share index.
BAD DEBT PRESSURE
However, RBS warned that it expected bad debts to keep climbing throughout 2009 as faltering economic growth puts more companies and households under financial pressure.
"Right across the board, by geography and by category, there are increased credit weaknesses," RBS Chief Executive Stephen Hester told reporters on a conference call.
He estimated that bad debts for 2009 as a whole could be four times the figure for the first quarter, implying a full-year charge of 11.44 billion pounds, up 54 percent from 7.43 billion pounds in 2008.
RBS was the latest big European bank to say bad debts were ratcheting up as economies worsen and unemployment rises.
RBS on Friday also warned that its net interest margin — the difference between the interest paid to depositors and creditors and the interest charged to borrowers, a key profit driver — fell in the first quarter and would keep falling over the rest of the year.
The margin dropped to 1.73 percent in the first three months of 2009, and looks set to fall by a further 0.15 percentage points for the year as a whole, RBS said, blaming intense competition for retail deposits.
RBS on Friday also reported a further 2.1 billion pound writedown on credit market exposures, reflecting a deterioration in the outlook for monoline insurers.
The British state took a majority stake in RBS at the height of the banking crisis last October in return for 20 billion pounds of emergency funding.
