THE Royal Bank of Scotland has revealed a hidden jewel in the form of a 24% indirect holding in the Superdiplo supermarket group in Spain. That is being partially floated next week and the bank expects to be able to record a profit of #1000m in its full-year results.
The disclosure and accompanying better than expected half-time results which saw pre-tax profits rising 21% to #411m helped boost the shares 54.5p to 988p. This indicated a market capitalisation of #8470m.
Chief executive George Mathewson thought the #630m acquisition of Birmingham & Midshires is now less likely since the intervention of Halifax.
However, a spokesman for the Wolverhampton-based building society said that the deal with the Royal is everything the society wanted, except in price, as it offered autonomy, independence and continuity.
Midshires has three times asked to be released from the exclusivity deal, the last time being on April 7, as it felt the offer clearly undervalued the society. It has yet to receive a reply.
It is thought that it offered a sum of #5m in compensation but Royal's finance director, Robert Speirs, said that the costs so far are some #6m, indicating that he would require a somewhat higher amount for the bank to walk away.
Mathewson pointed out that since Halifax made its #780m approach, the prices of the mortgages banks had fallen substantially. The percentage fall in the Halifax shares would have taken its offer down to the same level as the Royal's.
He added that he worried less about this situation than the City.
Royal's profits were hit by a #53m additional bad-debt provision against the Asian crises of which Indonesia is the most important component.
However, the bank, chaired by Lord Younger, has been in that country for the past 24 years and believes the underlying quality of its loan assets is high and does not expect to make any additional charges.
In Britain, provisioning was driven by the increase in consumer lending, particularly on credit cards, including the rapidly growing Advanta brand.
Mathewson said that at the moment the bank does not see any problems in the economy and there was a good chance of a relatively soft landing.
Credit quality is being helped by applying stiffer criteria for loans on both the retail and corporate businesses.
Corporate and structured finance are expanding rapidly in England with the group having connections with just over half the top 1500 UK companies with the thrust to offer as many innovative services as possible.
The retail side benefited from rising fee income and a widening of interest margins.
Direct Line increased its contribution slightly to #10m with the number of motor policies stable at 2.1 million.
Household and other risks were affected by the winter storms but these were offset by a generally milder winter although the #1m cost of the recent floods will be accounted for in the second half.
The expansion into Spain has proved the red telephone crosses international borders successfully.
The banking joint venture with Tesco has accumulated 600,000 accounts but lost #23m. It is, however, expected to breakeven by the year 2000 as the number of non-deposit type products are introduced.
As usual, the 76.5% owned Citizens Financial Group in the US powered ahead.
Its profits rose by 30% to #108m as it gained customers from competitor banks merging.
Mathewson said that the mergers of large banks in the US will not affect the UK at all except in the minds of analysts and were driven by survival fears rather than shareholder value. He predicted that it would be difficult for there to be a successful hostile takeover bid for either of the two quoted Scottish banks.
With Labour trailing the SNP in opinion polls for the Scottish Parliament such a move would be politically arduous.
He added that, in any case, the synergies would not be high for an acquirer while the customer base would migrate to the surviving independent bank.
The interim dividend has been raised 15% to 7.13p
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