State-backed Royal Bank of Scotland has reported a third straight quarter of profits but a looming US fine looks likely to see it rack up a 10th annual loss in a row.
The third quarter profit figure of £392m compared with a loss of £469m for the same period last year.
It is only the second time since the financial crisis in 2008 that RBS has reported three quarters in a row in the black.
But a potential multi-billion dollar penalty from the US Department of Justice (DoJ) over the sale of toxic mortgage bonds could see it in the red for the 10th year in succession when it reports annual results for 2017.
The bank, still 70% owned by the taxpayer after its £45bn rescue during the crisis, does not expect to return to a full-year profit until 2018.
RBS is still counting the cost of past mistakes, taking a litigation and conduct charge of £125m for the third quarter, while restructuring costs – as the bank continues its aim of slimming down – were £244m, though both sums were down on the same period last year.
But it is the DoJ’s investigation into its sale of mortgage-backed securities in the run-up the the crisis that looms largest.
The bank has already agreed a separate £4.2bn penalty with other US regulators over the affair.
In its latest quarterly update, RBS said that subject to any further provisions for the DoJ probe being “substantially taken in 2017” it continued to expect “that we will be profitable in 2018”.
Chief executive Ross McEwan said: “Our strategy to deliver a simpler, safer, customer-focused bank, is working.
“We have grown income, reduced costs, made better use of our capital and continued to make progress on our legacy conduct issues.
“Our core bank continues to generate strong profits and we remain on track to hit our financial targets.”
Shares rose 2% in early trading.
Mr McEwan added that he was pleasantly surprised at the resilience of the UK economy but warned that an interest rate rise – expected next week – will “have an impact for people with mortgages”.
The bank also said it was reducing its exposure to unsecured consumer lending amid continuing concerns over a household debt boom.
The results came hours after the latest in a string of penalties in the US, as RBS agreed to pay $44m to settle a criminal investigation that accused its traders of lying to customers over bond prices.
Earlier this week, Britain’s Financial Conduct Authority warned the bank that it may still face action over the controversial treatment of small business customers by its restructuring unit.
Laith Khalaf, senior analyst at Hargreaves Lansdown, said the fact that the bank has said it expects to be profitable next year “suggests RBS is bracing for a pretty imminent rap on the knuckles” from the DoJ.