RBS eyes acquisitions after reporting 12% rise in profits

Royal Bank of Scotland said yesterday it was eyeing acquisitions in the UK, on the Continent and in the US to add to its fast-growing empire.

RBS, which swallowed National Westminster three years ago, signalled its interest in further deals as it bucked the downwards profits trend in the current banking reporting season with a 12 per cent jump in underlying pre-tax profits to £6.45bn.

Fred Goodwin, RBS's chief executive, said he was not looking for "transforming" deals such as the NatWest acquisition. But he added there were a "significant range of opportunities" for strategic add-ons in Europe and America, where RBS purchased part of Mellon bank last year.

The bank could afford some major purchases. It has just completed the integration of NatWest and will this year complete the repayment of cash to shareholders on special shares issued in 2000 to finance that deal.

After it has made a payment of £1.5bn on these shares in December, the bank will be free to use the ongoing cash synergies from that acquisition to finance further expansion.

Alternatively, if nothing looks appealing within the next year or so, it may return cash to shareholders through a share buyback.

RBS said the NatWest deal had added £590m in annual profit. Including other acquisitions and organic growth, RBS's income has leapt 52 per cent, or £5.75bn, since 1999. "We have grown an Abbey National in the last three years in income but, I am pleased to report, in no other respect," Mr Goodwin said, referring to Britain's beleaguered sixth-biggest bank which reported a loss of nearly £1bn on Wednesday.

RBS said provisions for bad debts increased by 36 per cent to £1.35bn in the 12 months to 31 December after the bank remained cautious about the health of the global economy. Its shares slipped 5p to £13.94.

Mr Goodwin said: "We lifted our foot off the accelerator in corporate lending. Many of the metrics show some improvement, but until we see harder evidence we will not be altering our stance."