Buyers back RBS repair job

Still nursing terrible wounds inflicted by the financial crisis, there are at least signs in its interim results that Royal Bank of Scotland remains on the road to recovery.

Taxpayer-owned RBS actually made £939 million in the six months to 30 June, the first half-year profit in three years. Last year the lender lost over £2 billion.

Strip out one-offs like disposals, restructuring, litigation and conduct costs, and operating profit topped £3 billion for the six months and £1.69 billion for the second quarter. The quarterly number was more than 50% ahead of company-compiled consensus estimates.

There are always lots of moving parts in RBS results, but even after adjusting for these, underlying profit smashed forecasts for the quarter. There were also beats on capital ratios at 14.8% versus target of 13%, and on costs.

So, RBS's core business is improving, costs are being taken out, and a number of legacy issues have been put to bed. There's now a clear path to consistent profitability, very likely in 2018, making a return to the dividend list more of a reality.

It won't happen until RBS has agreed a massive fine for its part in the US subprime scandal, and passed an appropriate stress test.

RBS is the most sensitive of our big banks to rate moves, but borrowing costs are highly unlikely to increase any time soon, so there'll be no help here for margins.

The shares are not obviously cheap, either, and management still has an enormous amount to do, more than the other large domestic banks. But these results do show what can be achieved, and go some way to restoring confidence in the business and the investment case.

Preparing the ground for its base in Amsterdam as a workaround for Brexit is sensible, too.

RBS shares peaked early Friday at a previously stubborn ceiling at around 269p. Break above that and there's clear air to 280p, the 50% retracement of the decline from March 2015 highs and a significant technical level.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.