Taxpayer-backed Royal Bank of Scotland has revealed a sharp fall in third-quarter profits while warning future costs relating to litigation and past misconduct could be substantially higher than expected.
Pre-tax profits came in at £842 million for the quarter, compared to £2.05 billion a year earlier.
RBS has already set aside 4.5 billion pounds to cover regulatory and legal actions, including 2.4 billion for litigation.
But in a statement it said: ""Whilst legacy issues continue to be addressed, material further and incremental costs and provisions in respect of conduct and litigation related matters are expected, and could be substantially greater than the aggregate provisions RBS has recognised."
The Edinburgh-based bank revealed litigation costs of £129 million for the quarter relating to mortgage-backed securities.
The bank is facing a number of probes into past misconduct including an investigation by authorities in the United States into claims it misled investors in mortgage-backed securities and an investigation by Britain's financial regulator into its treatment of struggling small firms.
Restructuring costs rose to £847m from £167m in the period.
It has announced the sale of its final 20.9% stake in US bank Citizens worth £1.1 billion.
Income was down £596 million compare to Q3 last year, which the bank said was driven by a £394 million decline in Corporate & Institutional Banking.
"Income pressures were also seen in UK personal & business banking and commercial banking where good loan volume growth was offset by continued competitive pressure on asset margins."
Elsewhere, there was continued growth in its mortgage lending, up 3.6% on the second quarter to £3.8 billion. It added that gross new mortgage lending was 42% up on a year ago, "representing a 12% market share of new lending against our stock market share of 8.5%".
In July the Government began the process of privatising RBS by selling a £2.1 billion stake in the bank - at a loss of more than £1 billion to the taxpayer.
Richard Hunter, head of equities at Hargreaves Lansdown Stockbrokers, described the results as mixed, adding: "RBS continues to atone for past mistakes in a turnaround which is complicated, costly and protracted.
"There are some signs of cheer - the Citizens stake is now out of the way entirely, operating expenses and impairments are both moving in the right direction, whilst the capital cushion is healthy. In addition, even though it is no more than the thin end of the wedge, the Government has begun to reduce its stake, albeit leaving a hefty 73% interest.
"Less positively, restructuring costs remain very high, there has been pressure on the investment bank and personal divisions due to reshaping costs and margin pressure respectively, whilst a dividend payment remains a distant dream with the earliest date being the first quarter of 2017.
"In an interest rate environment such as this, the lack of any yield is another factor which has resulted in investors shunning the shares."
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