Further provisions for mis-sold Payment Protection Insurance (PPI) and a hefty charge for own-credit adjustments pushed Royal Bank of Scotland (RBS) into the red in the third quarter, but the bank's underlying performance showed a robust improvement.

The part-nationalised lender registered a statutory loss before tax of £1.26bn during the three months to September 30th, compared with a profit of £2.0bn in the third quarter of 2011. This was mainly attributable to a £1.46bn own-credit adjustment and a £400m bill for PPI redress.

This takes the total PPI costs for the first nine months of 2012 to £660m.

However, the bank's underlying performance, measured by adjusted group operating profit (which excludes own-credit adjustment, PPI costs and other one-offs) jumped to £1.05bn, from just £2m the year previously, helped by a 67% increase in 'core' operating profits and a further reduction in operating losses from the 'non-core'.

Core income increased slightly from £6.03bn to £6.41bn year-on-year, as a 1% decline in Retail & Commercial income was offset by an impressive 128% gain in Markets non-interest income, with realised bond gains increasing as the group repositioned its liquidity portfolio.

Making "excellent progress", says Hester


"The RBS restructuring programme continues to make excellent progress as we take the action needed to make the bank safer and stronger," said Chief Executive Stephen Hester.

"Our funding and capital position has been transformed, we have repaid all emergency loans from the Government and central banks, and we recently exited the Asset Protection Scheme without ever making a claim."

Hester said that economic pressures are still restraining customer activity levels and as such "banks are running hard to stand still in this environment.

"Nevertheless, resilient Core bank performance at RBS provides resources for customers and for our cleanup, whilst signposting shareholder value in the future," he said.

The third quarter saw the flotation of insurance unit Direct Line, with RBS raising £911m from the sale of a 34.7% stake.

While there was some disappointment about last month's move by Spanish banking group Santander to pull out of its agreed purchase of 316 RBS branches, the bank assured that much of the work to separate the business has already been completed. RBS has recommenced its efforts to divest the business, which uses 2% of its capital resources, the firm said.

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Royal Bank of Scotland Group (RBS) share price
Direct Line Insurance Group (DLG) share price