Banks' reputation hits 'new lows'

RBS boss Stephen Hester conceded that the banking sector's reputation had hit "new lows" as the taxpayer-backed lender counted the mounting cost of its failures.

The 80% state-owned bank set aside £310 million to deal with the fallout from an IT meltdown and two mis-selling scandals, while half-year losses doubled to £1.5 billion.

Unveiling the group's half-year results, Mr Hester admitted the banking industry was in "a chastening period" and warned there was "some way still to go" in mopping up mistakes made in the excessive years before the financial crisis.

But investors looked beyond headline figures and took cheer from an underlying performance in line with analysts' expectations, sending RBS shares 4% higher.

The bank said the computer glitch on June 19 that locked many RBS, NatWest and Ulster Bank customers out of their accounts would cost it £125 million. But the lender warned that the full cost of the failure, which is being investigated by an external counsel, could rise and a further update would be given in the third quarter.

RBS unveiled a £135 million hit to cover the cost of payment protection insurance (PPI) mis-selling, bringing its total bill to £1.3 billion, while it took a £50 million charge to compensate small businesses that were mis-sold complex interest rate swaps.

But Mr Hester, who waived his 2012 bonus in the wake of the IT debacle, said RBS had "undergone huge change for the better" and added the "fruits of change are visible in many areas".

He said: "We have continued to make the bank safer and stronger as we clean up problems of the past. And despite the tougher economy, these results show our ongoing businesses to be more resilient than before with many further improvements under way."

Asked to comment on reports that some within government would like to see the bank fully nationalised, Mr Hester said "that is not a discussion we are part of".

Looking within the results, the group revealed a 14% slide in total income to £13.6 billion while its core banking operations saw a 19% drop in operating profits to £3.2 billion. The group said its plans to float insurance arm Direct Line on the stock exchange in the second half of this year remain on track.