RBS shares surge with £3.6bn loss less grim than forecast

Royal Bank of Scotland today announced losses of £3.6 billion down from the £24.3 billion record British corporate loss it made in 2008.

The loss was considerably lower than the City's forecasts of anything from £5 billion to £7 billion and RBS shares jumped almost 8% rising 2.9p to 39p.

Chief executive Stephen Hester said the bank had beaten all the first-year targets he set as part of his five-year turnaround plan but warned "there's a hard slog ahead".

He also said that the Government might be able to start selling some of its shares in the bank earlier than had been expected: "I think they could start selling in 2011. We have set ourselves targets to hit in 2013 but given that the stock market works on anticipation, the share sale could hopefully start well before that."

Even with today's share price rise the taxpayer is sitting on a loss of more than £5 billion and the shares need to rise well above 50p for the bail-out to result in a profit for the Treasury.

"RBS is being restructured and run to serve customers well, to be safe and stable and to restore sustainable shareholder value for all," Hester said. "That is our legal duty and it is our intention and desire. It is also the only way taxpayers will recover the support they have given us."

Hester, who turned down his £1.6 million bonus for last year but secured £1.3 billion of bonuses for his investment bankers, said: "The worst is now behind us. The bulk of the balance sheet reduction has been done although there is further to go."

Investment banking was the driving force in RBS cutting its deficit with a huge swing from operating losses of £1.8 billion to profits of £5.7 billion. Hester said it had "taken advantage of buoyant markets despite the handicaps of its own radical restructuring".

Retail, corporate banking and insurance profits were all sharply lower than a year ago as the recession led to soaring bad debts. Impairment charges for the bank jumped from £7.4 billion to £13.9 billion but Hester said he believed they had peaked with the charge in the fourth quarter 5% lower than in the third one.

He said the outlook was "cautiously encouraging for RBS and the economies we serve, although with clear risks. It looks as though loan impairments may have peaked in 2009 and our net interest margin has shown two quarters of improvement".

The group's total income rose 43% to £29.4 billion last year.