RBS profit falls as Brexit and competition take toll

By Iain Withers and Lawrence White

EDINBURGH/LONDON (Reuters) - Royal Bank of Scotland reported lower first quarter profit on Friday, hurt by intensifying competition and Brexit uncertainty, while its investment bank also registered poor returns.

RBS shares fell as much as 7 percent in morning trading, with the results coming a day after its Chief Executive Ross McEwan announced plans to leave within a year, marking a new era for the state-controlled lender.

RBS reported a net profit of 707 million pounds for the period. While above expectations of 546 million pounds from a company-provided average of analyst forecasts, the figure dropped from 808 million pounds last year.

The bank, still 62 percent owned by the state, blamed tough trading conditions in the UK for the decline, particularly in the highly competitive mortgage market.

The pressure ate into the lender's net interest margin - a key measure of underlying profitability - which declined 6 basis points quarter-on-quarter to 1.89 percent.

The bank said uncertainty over Brexit would likely delay borrowing by business customers, making growth more challenging.

RBS's slimmed-down investment bank performed badly over the period, with income down 41.4 percent on the previous year.

McEwan said RBS was still committed to its investment bank, saying its performance was in "the middle of the pack" with underlying income down 8 percent quarter-on-quarter, amid poor results for rivals across the banking industry.

In a call with reporters, McEwan added that he believed the numbers were a "solid set of results against an uncertain economic and political background".

Profit at rival British bank Barclays fell 10 percent in the first quarter as its under-pressure investment bank struggled, prompting it to signal further cost cuts if these conditions persist.

Analysts said that while RBS' profit beat expectations, that was due to the benefits from one-off surprises on lower costs, bad loans and litigation charges and that the underlying performance was poor.

"This is a low quality earnings beat and we think the market will punish RBS severely for it," analyst John Cronin at broker Goodbody in Dublin said. The shares traded 4.4 percent lower at 239 pence at 0900 GMT.

SUCCESSION PLANNING

RBS launched a global hunt for a successor to McEwan on Thursday, with top RBS executive Alison Rose tipped as the leading candidate.

McEwan's successor should have a much better hand to play following a major turnaround at the bank since its 45 billion pound taxpayer bailout at the height of the financial crisis.

Two consecutive years back in the black allowed the firm to pay its first dividend in a decade for 2018.

But the bank remains under pressure, with investors pushing for higher payouts when intensifying competition is squeezing profits and Brexit uncertainty has dampened economic forecasts.

McEwan said on Friday that the bank's core capital ratio, stable at 16.2 percent, left it room to manoeuvre, and the bank remained committed to paying out excess capital from next year and reducing its capital buffer to 14 percent by 2021.

Question marks also remain over how quickly the government will sell its remaining stake in the lender, although it has sketched out plans to sell the holding by 2024.

RBS Chief Financial Officer Katie Murray said this was a matter for the government and it was unclear if Brexit uncertainty would delay the process.

"They'll take a view there, but at the moment the government is absorbed with Brexit so that may or may not have an impact," she said.

(Reporting by Iain Withers and Lawrence White; Editing by Rachel Armstrong/Keith Weir)