RBS eyes recovery, sees no plans for cut price sale

A logo of an Royal Bank of Scotland (RBS) is seen at a branch in London February 23, 2012.

LONDON (Reuters) - State-backed Royal Bank of Scotland said it was on the path to recovery after a better-than-expected quarterly profit, and the government had "no desire" to start selling its stake at current depressed prices.

The government owns an 82 percent stake in the bank after a 2008 bailout during the financial crisis that also involved emergency loans to the bank.

Hester said the bank would next week finish paying back the emergency loans. It will also recommence payment of dividends and coupons on hybrid capital.

Sources said in March the government had held talks with Abu Dhabi, raising speculation RBS shares could be sold, although a deal is still seen as months away.

"As far as I am aware there is no desire to sell at current share prices and I find that entirely understandable," RBS Chief Executive Stephen Hester said on a conference call on Friday.

"While everyone is focused on that being the desired end-game, I'm not aware of anything that's imminent."

RBS, meanwhile, is aggressively shrinking non-core assets to improve liquidity.

On Friday it reported a first quarter operating profit of 1.2 billion pounds, compared with a loss of 144 million the previous quarter and a consensus forecast of 800 million.

"Excellent progress continues in removing mistakes of the past," Hester said, adding he was happy with the first quarter "although the economic and regulatory backdrop remains tough".

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

"The main good news, once again, is the speed of balance sheet progress. It's really a story of balance sheet repair with no worse than expected underlying income statements," said Investec analyst Ian Graham. "I would call it decent progress but obviously it remains a long, painful journey."

By 08:35 British Time RBS shares were up 1.4 percent at 24.9 pence, about half the average price paid by the government, leaving the taxpayer sitting on a 23 billion pound loss.

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

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

(Reporting by Matt Scuffham; Editing by Mike Nesbit and Helen Massy-Beresford)