RBS cuts losses, bank profits slump

By Clara Ferreira-Marques and Steve Slater

LONDON (Reuters) - Losses at part-nationalised Royal Bank of Scotland more than halved in the third quarter with a sharp reduction in bad debt writeoffs, despite a slump in profits at its beleaguered investment bank.

"I have repeatedly said this is a marathon, not a sprint, and so it is proving," said Stephen Hester, the chief executive brought in a year ago to bring the bank back from the brink of collapse.

The investment banking arm's profits fell to just over a third of its second-quarter levels, hit by impairments and poor trading after favourable conditions in its key commodity and currency markets flattered its performance in the first half.

But there was some good news for RBS's battered investors, as overall bad debts at the bailed-out lender fell 30 percent to 3.3 billion pounds in the three months, and the bank said bad loans were showing signs of "plateauing."

That helped the bank's third-quarter operating loss narrow to 1.5 billion pounds from 3.5 billion in the second quarter.

RBS cautioned bad loans were expected to "remain at elevated levels for the next few quarters," with conditions in Ireland and the United States remaining difficult.

"It might take as much as a year, or even more, for there to be a significant move down (in bad debts), which is why we are talking of a plateau," Hester said.

At 12:23 p.m. the stock was up 4.5 percent at 36.8p after trading earlier this week down to 33.9p, near six-month lows, when the bank agreed to a deal which will see the government inject 25.5 billion pounds and provide more flexible terms for an insurance scheme for bad debts, but will lift the state's stake to over 84 percent. It is also being forced to sell several assets.