Royal Bank of Scotland is set to raise the bar for profits by a UK bank over the past year by reporting a haul of around £8.1bn (€11.8bn) today.
The UK’s second-largest bank will update the market after bumper earnings from the likes of Barclays and Lloyds TSB, with analysts expecting some progress on the £7.85bn (€11.5bn) figure of 2004.
The profits performance may not excite investors however, if there is no mention of a share buyback programme, although reports at the weekend said RBS is preparing to dip into the market to acquire £1bn (€1.46bn) of its own stock.
Efforts to boost sentiment among investors would be welcome as shares in RBS have lagged rivals in the banking sector after a series of large and expensive deals overseas.
RBS led a group of investors in the purchase of a stake in Bank of China – the second largest bank in the Asian country – for $3.1bn (€2.5bn) in August.
Last year, RBS paid £5.8bn (€8.5bn) for Charter One Financial in the United States – meaning the company now generates around a quarter of its profits across the Atlantic.
Banking analyst John-Paul Crutchley at Merrill Lynch said concerns that RBS might consider another big deal should now recede and the company seemed to be focused on its existing businesses and balance sheet.
He said: “We think that the investment in Bank of China will increasingly be seen as well-timed.”
Based on the experience of other banks including HSBC, Mr Crutchley said RBS might soon sit on a paper profit that it is equal to its original investment.
James Eden, an analyst at Dresdner Kleinwort Wasserstein, said a share buyback programme instigated by RBS boss Sir Fred Goodwin now would “win over the doubters”.
He said: “Our impression is that the share price includes a management discount – some investors still worry that Fred cares more about size than shareholders.”
Some signs of improvement are expected at its high street banks in the UK during the second half of its financial year and RBS is expected to indicate that bad debts in its home market are levelling off.
But analysts will also focus on its US operations where a number of rivals have issued disappointing results with margins under particular pressure.
Although RBS is likely to post the highest profits in 2005 among those banks which have reported results so far, it is expected that HSBC will report an annual surplus of £11.5bn (€16.8bn) next month.