RBS Grows Profit But Sets Aside Further £780m

Royal Bank of Scotland (RBS) has set aside a further £780m to cover the costs of conduct issues, including the PPI mis-selling scandal.

The news was released alongside its third-quarter results which demonstrated that the bank's recovery was continuing to build despite the burden of extra provisions for past mistakes.

RBS said it was taking a £400m charge in anticipation of regulatory action over the alleged manipulation of foreign exchange markets - following a similar move by rival Barclays 24-hours earlier.

It added £100m to its bill for PPI - taking the total to £3.3bn - citing "higher than expected reactive complaint volumes."

The bank, which is 80% owned by the taxpayer after its rescue during the financial crisis, said its profits for the third quarter were up to £1.27bn, compared with a loss of £634m in the same period last year.

It is the first time the bank has reported a profit for three quarters in a row since its bailout.

RBS also confirmed it was retaining Ulster Bank following a strategic review of the business.

Chief executive Ross McEwan said: "In February I placed trust at the heart of my new strategy for our bank.

"We have taken the first steps towards that goal, with early progress in making RBS simpler, clearer and fairer.

"We are reducing costs, and are on track to achieve our capital targets.

"UK and Ireland are showing signs of growth, and impairment trends are significantly better than we had anticipated at the start of the year.

"We have confirmed today that Ulster Bank remains a core part of our bank. We have a good market position and believe that, with investment, Ulster Bank can deliver attractive shareholder returns in the future.

"But we know we still have a long list of conduct and litigation issues to deal with and much, much more to do to restore our customers' trust in us."

The RBS share price rose 3% in early trading on the FTSE 100 in the wake of the update.

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Energy Bills: UK Gas Prices Hit Record Low

UK wholesale gas prices have hit a record low, piling more pressure on energy firms to explain why household bills have not been slashed.

The latest fall in raw costs - for November and December delivery - has resulted in a 23% fall over the year so far though bills have remained largely static.

The latest drop was a response to Ukraine and Russia signing a deal to end the threat of supplies being choked off.

The deal will see Moscow resume gas flows over the winter despite their continuing sovereignty row.

The agreement also guarantees delivery to the EU. Russian gas makes up approximately 15% of UK supply.

Raw energy costs, including oil too, have been tumbling in recent months - with Brent Crude losing 25% of its value since June on the back of weaker demand as the world's economic recovery shows signs of easing.

The energy regulator Ofgem told Sky News this week it was seeking an explanation from household suppliers on why they had not passed on to customers the significant falls in wholesale costs.

So-called 'Big Six' firms responded to today's development by insisting that bills reflected long term gas costs not short term pricing.

Companies have recently been tinkering with their offerings, taking their lowest annual tariffs below an average £1,000, but are yet to signal any major cuts to bills despite their wholesale costs diving by almost a quarter during 2014.

Industry body Energy UK said: "There are good deals on the market for customers shopping around and looking to fix their payments.

"Wholesale prices are just part of the bill and, although reduced pressure on the wholesale gas market is good news in the long term, companies buy energy days, weeks, months - even years - in advance to protect customers from sudden changes in costs, and will have bought gas when prices were higher."

Energy firms must use either the wholesale market or a contract with an electricity generator to purchase their energy, which is then delivered to households.

But some suppliers are also part of companies that generate their own energy, so they effectively sell energy to themselves - a situation that has led to calls for greater transparency on profits by splitting generation and supply businesses.

Reported profit levels have recently fallen back to levels not seen since 2009 and companies have consistently argued that their profits are fair and bills reflect not only the timing of their raw gas purchases and hedging strategies but also and high investment costs.

National Grid's latest Winter Outlook report warned that spare capacity was at its weakest level for seven years - a result of several factors including the failure to keep pace with power station closures and unscheduled plant outages.

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BBA: New Oversight Will Hurt Smaller Banks

By Mark Kleinman, City Editor

Smaller lenders would be hit by new rules heralding the world's toughest oversight regime for senior bankers, according to the industry's main City-based lobbying groups.

The warning is contained in a confidential paper submitted on Friday to UK watchdogs ahead of sweeping reforms that will include the threat of seven-year prison terms for directors of failed banks.

In a joint response to the Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA), the British Bankers' Association (BBA) and Association for Financial Markets in Europe (AFME) said that smaller banks would suffer disproportionately high costs in order to comply with the new supervisory framework.

"Coupled with the existing funding, capital and payment access disadvantages already suffered, these new overheads will act as a further barrier to small banks which have fewer senior executives amongst whom responsibilities can be shared, reducing their ability to provide challenge and competitive alternatives in the UK retail and small business market," the lobby groups said.

Their submission, a copy of which has been obtained by Sky News, contains several other objections to the FCA and PRA proposals, including:

:: A suggestion that non-executive directors of banks would lose their independence and begin "man-marking" their full-time colleagues if they are covered by the same rules.

The response said: "The proposed regime could potentially alter the current nature of NED and executive director relationships, and impact the current collaborative and challenge-based board decision-making processes as individual NEDs seek to protect against their individual personal liability."

That warning comes weeks after Sky News revealed that two directors of HSBC's UK subsidiary were quitting in protest at the new rules, which will come into effect next year.

:: A concern that the FCA would have jurisdiction over the overseas employees of UK-based banks even when individuals have no direct connection with UK clients or a realistic possibility of causing harm to a UK-regulated firm.

:: A plan to discontinue the current FCA register of banking industry employees should be dropped because it "will have a negative effect on standards across the industry, in part because of a reduction in transparent (for the industry, consumers and regulators) of many individuals' conduct history".

:: Rejecting the idea that chairmen of banks should not be solely responsible for ensuring that whistleblowers are protected from detrimental treatment.

Regulators are likely to be particularly sensitive to the complaint about higher costs being imposed on smaller lenders following efforts led by George Osborne, the Chancellor, and Vince Cable, the Business Secretary, to pave the way for a new group of "challenger banks".

The new framework has emerged in the wake of pressure on regulators to toughen penalties in the wake of the financial crisis and subsequent trading scandals, including Libor and foreign exchange benchmarks.

Six banks are expected to pay well over £1bn to UK regulators alone to settle the forex issues, with an announcement expected next month.

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Energy Crunch: Plan To Keep The Lights On

National Grid has warned the UK may be forced to resort to emergency measures to keep the lights on if bad weather strikes this winter, with households picking up the bill.

Its annual Winter Outlook report looking at the capacity margin - the gap between total electricity generating capacity and peak demand - was compiled as the country misses output from five key power stations following fires or safety checks.

The network operator put the figure at just 4.1% - its narrowest since 2006/7 - and said that margin of spare capacity could fall further to just 2.8% if weather conditions took a turn for the worse.

Such a scenario would mean the grid failing to meet its "basic reserve requirement" of spare capacity needed to run the system, forcing it to adopt contingencies such as paying factories to shut down and supplying reserves from mothballed power stations.

Power station fires have hit electricity output

National Grid said it was finalising contracts with three sites, Littlebrook in Kent, Rye House in Hertfordshire and Peterhead in Aberdeenshire, to provide reserve capacity that would widen the margin by 2%.

Having to use these power stations would add £1 to the average family bill, the operator confirmed, as it would cost £25m.

1/5

1. Gallery: Blackout Britain: 1970s Power Cuts

   Paul Caldecott, six, was forced to stay at school because his parents couldn't pick him up

2. Four women work in a Slumberdown office in Bond Street, London, during a miners' strike in 1973

3. A woman breastfeeding her baby during a blackout at St Andrews Hospital, Dollis Hill, northwest London

4. Working for Slumberdown had its advantages, as these women could wrap themselves in quilts to keep warm during a blackout

5. Customers and staff at an HMV shop in Oxford Street, London, during a power cut in December 1973

The prospect of an electricity crunch has risen since the summer, when a key measure of risk, called Loss of Load Expectation (Lole) was forecast at 0.5 hours for the coming winter.

Since then the Lole risk measure has risen to 1.6 hours, factoring in the fires that have caused the permanent shutdown of Ironbridge in Shropshire and the temporary closure of Ferrybridge in West Yorkshire.

A power station in Barking will also close, while a planned return to service for four EDF nuclear reactors at Heysham in Morecambe, Lancashire, and at Hartlepool, will see them return at only 75% capacity.

A fire earlier this month put half of operations out of action at Didcot B power station in Oxfordshire - which has capacity to supply a million homes.

The part of the site affected by the blaze is expected to return to around 50% service this week.

The Grid report said gas supplies were well ahead of expected peak demand but warned of the uncertain impact of tensions over Ukraine, which could strangle availability from the continent.

Video: Warning Expected Over Blackout Risk

The report warned that in the "extreme scenario" of cold winter conditions and Russia cutting off supplies, the UK may have to arrange factory shutdowns as well and rely on expensive imports from markets further afield such as Asia and South America.

Cordi O'Hara, director of market operation, said: "The electricity margin has decreased compared to recent years, but the outlook remains manageable and well within the reliability standard set by Government.

"As system operator, we have taken the sensible precaution to secure additional tools to bolster our response to tighter margins."

Energy Minister Matt Hancock said lights would stay on across the country.

He told BBC Radio 4: "There will be secure energy supplies this winter. There will be no power cuts to householders."

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Facebook Shares Slip On Cost Growth Warning

A leap in mobile advertising revenue helped Facebook almost double profits in its third quarter but shares fell 10% after it warned about higher costs ahead.

The social network's figures, which confirmed profits at $801m (£496m) and a 59% jump in total revenues to $3.2bn (£1.98bn) over the three months, were well above analysts' expectations.

Mobile advertising revenue made up 66% of total ad revenue in the period - indicating Facebook is succeeding in steering advertisers to its mobile platform at a time when most of its users are using Facebook on phones and tablets.

Though Facebook's results surpassed expectations, investors sent the company's stock down by almost 11% in after-hours trading - spooked by comments during a conference call that 2015 would be a "significant" year for expenses.

Facebook said it expected costs to grow by 55% to 75% next year as it ramps up investment in its workforce, grows existing products and invests in new areas such as WhatsApp, Oculus and video.

This year, Facebook spent $22bn in cash and stock to buy the messaging service WhatsApp and about $2bn on virtual reality company Oculus.

It also re-launched Atlas, a tool for marketers to better target people across "devices, platforms and publishers" and to measure how well the ads work.

Facebook's share price had hit a record high of $81.16 on Tuesday before the results came out.

The figure is more than double its flotation price of $38.

Facebook had 1.35 billion average monthly users as of 30 September, an increase of 14% from a year earlier.

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Clothing Retailers Take Warm Weather Hit

Shares in the UK's biggest clothing retailers have been hit after Next reduced its full-year profits guidance by £25m blaming unseasonably warm weather.

The UK's second-largest clothing retailer, which had warned one month ago that a lack of typically autumnal conditions in October would result in lower profit expectations, said third-quarter sales still grew by 5.4%.

But the growth was almost half the 10% it had previously forecast as demand for winter wear remained weak, signalling troubles for the wider sector in the run-up to the Christmas trading season as Next has largely outperformed its rivals for a decade.

Its share price fell 3% in early trading on the FTSE 100 while M&S and Debenhams also took hits to their values.

Official figures recently showed UK retail sales fell more than expected last month, with clothing demand hindered by the driest September since records began in 1910.

October is currently on track to be one of the warmest on record - if not the warmest.

Next, which trades from over 500 stores in Britain and Ireland, about 200 stores overseas and through its Directory internet and catalogue business, said: "Whilst a cool August meant that the season started well, this was more than offset by much weaker sales in September and October.

"Given the volatility of current trading and the very strong fourth quarter performance last year, we have moderated our expectations for the fourth quarter this year.

"We are now budgeting for full price sales in the final quarter to be within a range of -2% to +4%, with our central profit forecast for the year based on final quarter sales of +1%.

"We have reduced our central profit guidance by 3% to £770m (previously £795m)."

The forecast meant that much depends on the Christmas shopping season.

Next said it would update investors on its performance on 30 December.

While warm conditions are proving bad for clothing specialists, a number of retail sectors have benefited from the extended warmth.

The UK's strawberry industry has produced a record harvest of 60,000 tonnes since March and said it expects the growing use of polytunnels to enable crops for Christmas.

Coastal holiday resorts are expected to report stronger visitor numbers, with outside attractions reportedly proving popular too.

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Lloyds Bank: More Than 200 Branches To Close

By Mark Kleinman, City Editor

Britain's biggest retail bank will set out plans next week to close more than 200 branches under a blueprint that will also see 9,000 jobs disappear.

Sky News understands that Lloyds Banking Group will say that a significant minority of its 2,250 branches across the UK will be shut by the end of 2017, ending a three-year moratorium on such closures.

The focus of the axe will be on urban centres where there are already multiple branches under Lloyds' individual brands operating in close proximity, according to one source.

Lloyds has roughly 1,300 branches under its own name, 670 as Halifax and 290 using the Bank of Scotland brand.

While the issue of bank branch closures is a sensitive one, Lloyds hopes that it will escape widespread criticism because its plans will not, for example, leave rural communities without access to their existing nearest branch.

Lloyds has already offloaded more than 630 branches as part of a state aid settlement with Brussels which resulted in TSB being spun out as an independent high street bank.

The plans will be presented to the City by Antonio Horta-Osorio

Adding a further 200 to that figure would mean that approximately 30% of the group's branches would have been offloaded or closed since the merger of Lloyds TSB and HBOS during the 2008 financial crisis.

Insiders said that Lloyds, which is 25%-owned by taxpayers, would also open some new branches during the next three years, with the exact net closures figure unclear this weekend.

The group would continue to operate the UK's largest branch network even after the plans are implemented, the source added.

People close to the situation pointed out that Lloyds was trying to be transparent by outlining a formal branch closures number, while some rival banks had been closing small numbers of branches on a regular basis but without making public announcements about their actions.

The plans, which will be presented to the City by Antonio Horta-Osorio, Lloyds' chief executive, will demonstrate the bank's vision for automating its customer-facing operations during a period when digital banking is forecast to continue its explosive growth rate.

Sky News revealed during the week that the revised strategy would trigger around 9,000 job losses.

Earlier this year, the British Bankers' Association (BBA) published research showing that UK-based customers conducted almost 40 million mobile and internet banking transactions each week in 2013, a huge increase on the previous year.

The job cuts at Lloyds, which employs roughly 80,000 people, will be on a smaller scale than the cull which has taken place since the merger of Lloyds TSB and HBOS.

Since then, tens of thousands of jobs have been axed at the combined group, and at rivals including Barclays, HSBC and the state-backed Royal Bank of Scotland (RBS).

It was unclear on Wednesday how many of the 9,000 roles affected would be in branches and how many in support roles at, for example, call centres.

The strategy update, which will be unveiled alongside results for the third quarter of 2014, is unlikely to include details of a return to the dividend list, with Lloyds expected to have to wait for the outcome of a Bank of England stress test in mid-December.

A spokesman for Lloyds declined to comment.

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Merkel Set To Sink Cameron's EU Migrants Plan

Plans by David Cameron to get more control over how many EU migrants can enter the UK look set to be blocked by the leader of the German government Angela Merkel.

The German Chancellor said she is against changing one of the fundamental principles on which the European Union is built - freedom of movement.

British Prime Minister Mr Cameron has staked his political future on being able to renegotiate changes that will allow the UK greater control over its borders.

But Mrs Merkel has now signalled she will not support the move, which could make Mr Cameron's aim much more difficult to achieve.

Speaking to the Sunday Times, the German Chancellor said: "Germany will not tamper with the fundamental principles of free movement in the EU."

Video: PM Stands Firm On EU Surcharge

The British Prime Minister has previously indicated he will make reforms to the principle of freedom of movement for workers within the union a "red line".

He has promised that if he wins the next general election he will force through a number of changes to the way the EU works and then hold a referendum on Britain's membership.

He is thought to be preparing a manifesto pledge to bring in quotas for low-skilled migrants from the EU.

At present, it is a condition of the EU that member states must allow workers from other EU country to live or work there.

Before the last general election Mr Cameron promised to bring net annual immigration down to the "tens of thousands".

He has failed to get anywhere near the target, with many of those arriving annually coming from EU states to find work.

Mr Cameron has had a difficult few days, with European issues high on the agenda as he tries to fight off a UKIP challenge in the Rochester and Strood by-election.

Video: Britain Will Not Pay £1.7bn 'Bill'

On Friday he attended a Brussels summit only to be told he had to pay an extra £1.7bn into EU coffers.

Mr Cameron said he would not pay the bill by the 1 December deadline and warned that the row risked pushing the UK closer to the leaving.

The European Commission dismissed any objections, saying the figure was calculated by independent statisticians using a standard formula agreed by all member states.

That process depended on the relative economic performance of each state.

Mr Cameron's difficult few days, and those suffered by Labour leader Ed Miliband, appear to be reflected in the latest opinion polls.

A YouGov poll for the Sunday Times finds the Conservatives and Labour neck-and-neck on 33%, UKIP on 16% and the Lib Dems on 7%.

An Opinium survey for the Observer also puts the Tories and Labour on 33%, with UKIP on 18% and the Liberal Democrats on 6%.

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Over Five Million Britons In Low-Paid Jobs

A record five million UK workers are now in low-paid jobs, according to a new report.

The Resolution Foundation think-tank said the number of people earning less than £7.69 an hour increased by 250,000 last year to reach 5.2 million.

The increase partly reflected growth in employment, but there was also a reverse in the previous year's slight fall in low-paid work.

Workers in Britain are more likely to be low paid than those in comparable economies such as Germany and Australia, said the Resolution Foundation.

The think-tank's chief economist, Matthew Whittaker, said: "While recent months have brought much welcome news on the number of people moving into employment, the squeeze on real earnings continues. While low pay is likely to be better than no pay at all, it's troubling that the number of low-paid workers across Britain reached a record high last year.

Video: Cameron On Employment

"Being low paid - and getting stuck there for years on end - creates not only immediate financial pressures, but can permanently affect people's career prospects.

"A growing rump of low-paid jobs also presents a financial headache for the Government because it fails to boost the tax take and raises the benefits bill for working people."

He added: "All political parties have expressed an ambition to tackle low pay. Yet the proportion of low-paid workers has barely moved in the last 20 years.

Video: Survey: Scottish Job Growth Slowing

"A focus on raising the minimum wage can certainly help the very lowest paid workers in Britain, but we need a broader low-pay strategy in order to lift larger numbers out of working poverty.

"Economic growth alone won't solve our low-pay problem. We need to look more closely at the kind of jobs being created, the industries that are growing and the ability of people to move from one job or sector to the other, if we're really going to get to grips with low pay in Britain today."

Video: Angry Exchanges Over Job Creation

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