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Last Updated: Thursday, 28 February 2008, 17:20 GMT
RBS profits up despite writedowns
NatWest sign
RBS also owns NatWest, insurer Direct line and Ulster Bank
Royal Bank of Scotland (RBS), the UK's second largest bank, has reported an increase in annual profits despite losses linked to the credit crisis.

Writedowns on investments hit by the crisis in the US sub-prime mortgage market rose to 2.5bn from an original forecast of 1.25bn.

The bank said group operating profit, including the recently-purchased ABN Amro, was up 9% to 10.3bn ($20.4bn).

UK banks have fared better in the sub-prime crisis than their US rivals.

Profit before tax at RBS - which also owns NatWest - increased to 9.9bn in 2007, compared with 9.2bn the year before.

'Market deterioration'

The writedowns included losses totalling 1.6bn at RBS, while investments at ABN Amro, which it bought in October, were marked down by 900m.

In a banking world beset by uncertainty and anxiety, Royal Bank's results on paper look as good as could have been expected
Robert Peston, BBC Business Editor

Rising mortgage defaults and falling US house prices have meant loans bought by banks are worth less than thought.

"These results have been held back by the second half credit market deterioration, which led our Global Banking & Markets division to incur writedowns on its US mortgage-related and leveraged finance exposures," RBS said.

The bank had already warned in December that it expected to write off about 1.25bn because of its exposure to bad debts in the US home loans market.

British banks have, for the most part, declared lower losses from credit crisis than big US rivals such as Citigroup and Merrill Lynch.

Last week, Barclays reported a 1.6bn writedown for 2007.

Good on paper

BBC business editor Robert Peston said that RBS's results were encouraging.

Bears of RBS will want to hear that the writedowns have finally been put to bed, which cannot yet be definitely confirmed
Richard Hunter, Hargreaves Lansdown

Particularly striking, our correspondent said, was the growth of the bank's UK retail deposits as its NatWest subsidiary benefited from savers drawing their money out of Northern Rock.

"In a banking world beset by uncertainty and anxiety, Royal Bank's results on paper look as good as could have been expected," he said.

However, he said RBS's massive 71bn-euro takeover of ABN Amro had yet to make any contribution to the group's profits.

Dividend increase

RBS said it was increasing its dividend by 10% to 33.2 pence per share, a larger rise than the market had expected.

Rivals Barclays, Lloyds TSB and HBOS have made similar increases as lenders seek to placate shareholders worried by a steep slide in the value of banking stocks in recent months.

RBS shares ended the day down 8 pence at 402p.

"A strong rise in underlying profit, a 10% dividend hike, and confirmation that its capital ratio remains intact have all contributed to a boost in the share price," said Richard Hunter, head of equities at Hargreaves Lansdown.

"Bears of RBS will want to hear that the writedowns have finally been put to bed, which cannot yet be definitely confirmed."

RBS shares have lost a third of their value since the end of June as RBS bought ABN Amro just as the banking sector began to experience problems.

The deal, completed in October after a bidding war with Barclays, was Europe's biggest banking takeover to date.

Customer refunds

RBS also announced that it had refunded 119m to customers who had complained during the year that they had been overcharged for running up unauthorised overdrafts.

That full-year figure was a 47% increase on the half-year total of 81m.

It means that four of the UK's biggest lenders - RBS, HBOS, Barclays and Lloyds TSB - refunded a total of 433m last year.

A general stay was imposed on any further customer claims by the judicial authorities at the end of July pending the outcome of a high-profile court case.

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