By Anastasia Tomazhenkova: Royal Bank of Scotland Group PLC posted that its full year net profit rose 18% as gains from the sale of non-key assets outweighed the impact of subprime-related asset writedowns, which the bank also raised further.
RBS, Britain's second-largest bank by market capitalization, posted net profit of 7.3 billion pounds (14.5 billion dollars) for 2007 - including ABN Amro Holding NV, the Dutch bank which RBS acquired in mid-October - compared with 6.2 billion pounds in 2006.
Revenue rose 11% to 31.1 billion pounds (61.8 billion dollars), boosted by gains from the sale of its stake in Southern Water Capital Ltd.
That offset an increase in the banks writedowns due to the impact of the U.S. subprime housing crisis to 1.6 billion pounds (3.2 billion dollars), up from a previous forecast of 1.2 billion pounds (2.4 billion dollars) to the end of November.
The higher charge is largely due to a 456 million pound (904 million dollars) writedown on its exposure to U.S. bond insurers after they suffered rating downgrades.
ABN Amro booked separate writedowns of 900 million pounds (1.8 billion dollars).
On a positive note, the bank raised its expected benefits from its purchase of the Dutch Bank to 2.3 billion euros (3.5 billion dollars) from 1.7 billion euros, due to higher cost and revenue benefits.
"We have secured a whole additional range of options for ourselves this year that will serve us well in 2008 and beyond," said Chief Executive Fred Goodwin. "We feel that we are well placed to deal with a broad range of market scenarios."
However, the mixed nature of the report was reflected in RBS's share price, which fluctuated between gains and losses after the announcement. The stock was up 0.4% at 411.5 pence (8.16 dollars) in midday trade.
Collins Stewart analyst Alex Potter said the results were "OK ... but risks remain."
Potter said the extent of the writedowns "appears reasonable in a sector context but clearly this is a highly subjective area."
Richard Hunter, an analyst at Hargreaves Lansdown Stockbrokers, said market sentiment toward RBS is likely to remain neutral.
Overall, the bank said that earnings growth was driven by the bank's corporate banking business in its British home market, where operating profit rose 11%. Retail, especially savings and investment products, delivered 10% operating profit growth, while the investment banking business saw a 2% decline in operating profit as a result of market conditions.