RBS to repay loan next week, on path to profits

State-backed Royal Bank of Scotland said it was on the path to recovery as it reported a better-than-expected first-quarter operating profit and a big reduction in its balance sheet.

RBS, which is 82% owned by the UK government after being rescued during the 2008 financial crisis, on Friday reported a first quarter operating profit of 1.2 bln pounds ($1.9 bln), compared with a loss of 144 mln the previous quarter and a consensus forecast of 800 mln.

Chief Executive Stephen Hester also confirmed that the bank will next week finish paying back the emergency loans it received from the British government in the midst of the financial crisis. It will also recommence payment of dividends and coupons on hybrid capital.

Profits were led by its reshaped and streamlined investment bank, which bounced back to an operating profit of 824 mln pounds in the quarter from a 109 mln pounds loss in the previous three months as capital markets improved.

Revenues in its new markets unit were 1.7 bln pounds, more than double the fourth quarter but down 18% from a strong year ago period. RBS also spent 271 mln pounds restructuring the investment bank.

"We are happy with progress in the first quarter although the economic and regulatory backdrop remains tough," said Hester. "RBS continues, markedly, to regain strength and resilience."

Hester said the bank was making excellent progress in removing the "mistakes" of the past" with non-core assets being shrunk and liquidity strengthening.

RBS said its funded balance sheet had decreased by a further 27 bln pounds to 950 bln. It has reduced its short-term wholesale funding by 23 bln to 80 bln. Non-core funded assets were down 11 bln to 83 bln.