Royal Bank considers share buyback
LONDON, England (Reuters) -- Britain's Royal Bank of Scotland Group said on Thursday it would consider returning some of its mounting cash pile to shareholders as it reported record annual profits at the top of expectations.
Chief Executive Fred Goodwin said the bank would probably buy back shares if it did not find suitable acquisitions, helping to boost the bank's shares.
He said there were plenty of acquisition options but that they were not necessary to maintain growth, and said the time was not right to buy a big European bank.
Royal Bank became Britain's second-biggest bank by assets when it bought NatWest in 2000 for 21 billion pounds. The bank finished paying for NatWest last year, and investors have been concerned that it might use its capital for a large takeover.
"All things being equal, we should generate a lot of cash this year, and buybacks are one of the opportunities,'' Goodwin told reporters.
Pre-tax profit for 2003 surged by 29 percent to £6.16 billion ($11.74 billion) from £4.76 billion a year earlier on the back of strong revenue growth. The consensus was for a profit of £6.06 billion according to a Reuters poll of 10 analysts, within a range of £5.98-6.16 billion.
Pre-tax profit before goodwill and integration costs rose 11 percent to £7.15 billion.
Royal Bank's shares were up 3.4 percent at 1,690 pence at 1121 GMT. The stock had dropped 1.1 percent in the past six months, making it the third-worst performer of 11 listed UK banks, as concern about acquisitions weighed on the shares.
"The comments on buybacks are very significant,'' said Brian Moretta, who holds Royal Bank shares at SVM Asset Management.
"Suggesting they are not just going to go willy nilly and pay up for acquisitions has reassured people.''
Corporate leads
Revenue rose 14 percent to £19.23 billion, and profit increased at all divisions except wealth management.
Corporate banking and markets was the biggest contributor to profit growth with an 11 percent rise to £3.62 billion on trading for customers and increased capital markets business.
Retail banking profit rose four percent to £3.13 billion pounds, muted by a government ruling that forced banks to pay interest to small businesses, but profit at Retail Direct, which includes credit cards and unsecured loans rose 25 percent to £873 million.
Citizens, the bank's U.S. unit, increased profit 22 percent to $1.4 billion, though the dollar's decline meant its sterling equivalent rose 12 percent to £857 million.
Goodwin said it would be "cute'' to add New York state to Citizens, which operates in New England and Pennsylvania, but said that New York was "not a must-have.''
Profit was also boosted by cost savings, with the cost-income ratio falling to 42 percent from 44. Royal Bank has slashed expenses since buying NatWest, but Goodwin said there would be more savings next year and in 2006 from an efficiency drive that would push the ratio below 40 if it was finished now.
Net interest margin, which measures lending profitability was three percent compared with 3.1 in 2002. Expected rises in interest rates would be marginally beneficial because the bank will be able to adjust its prices, Goodwin told reporters.
The bad-debt charge rose to £1.494 billion from £1.345 billion, including write-offs for fixed assets. Goodwin said the outlook for corporate credit quality was improving.
The full-year dividend increased 15 percent to 50.3 pence.
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