Shares in Royal Bank of Scotland (RBS) slipped 5.6% to 290p today, despite chairman Sir Philip Hampton stating the lender's long-awaited privatisation could start by the middle of next year.

His comments accompanied news the troubled bank had made pre-tax profits of £826 million in the first quarter to March, compared to a £1.5 billion loss during the same period of 2012.

Web news - RBS Chart

Given today's share price reaction however, the market appears unconvinced that RBS, which has reported annual losses every year since its £45 billion bailout in 2008, will be in good enough shape for the government to start selling its shares in the next 12 months.

The reversal of the £2.2 billion loss at the bank made in the final quarter of 2012 is largely the result of falling loan impairments, which were reduced by 26% to £1 billion compared to the final three months of last year.

Lending to small and medium-sized business, which increased by 1% to £34 billion, was also a factor. The £18.7 billion cap also saw an improvement to its core tier 1 ratio, its reserves compared to its risk-weighted assets, to 10.8% versus 10.3% at the end of 2012.

RBS is also in the process of downsizing its still-profitable investment banking arm. New revenue streams will have to be found to ensure the bank reports its first full-year profit since 2007.

Falling bad debts and the decreasing volume of compensation payments for mis-selling payment protection insurance (PPI) alongside a modest 1% growth in lending are unlikely to be enough to increase the company?s profits, or for the government to find a suitable buyer for the business.

The news follows positive first-quarter results (30 Apr) from another state-owned bank, Lloyds (LLOY), which made £2 billion pre-tax profits, up from £280 million year-on-year. However, this was due to falling bad debts and one-off asset sales.

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Issue Date: 03 May 2013