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RBS shares battered after profit warning

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London (AFP)

State-rescued Royal Bank of Scotland boosted profits in the first half of this year but a warning on future profitability saw investors dump its shares on Friday.

The bank said net profit soared to 1.3 billion pounds ($1.1 billion) from 96 million pounds in the same period last year, when it was forced to book part of the massive $4.9 billion in fines paid for its role in the US sub-prime mortgage crisis.

At the same time RBS managed to increase revenues by 20 percent in the second quarter to 4.1 billion pounds, and increased lending despite growing uncertainty about Brexit.

"Given the uncertain and competitive environment, we are focussed on the areas we can control; costs are down, capital and liquidity are strong and we continue to grow lending to the real economy," said chief executive Ross McEwan.

The bank announced a special dividend for shareholders worth 1.7 billion pounds.

However the bank also warned that it would not meet next year's profitability target.

"Given current market conditions, continued economic and political uncertainty and the contraction of the yield curve, it is very unlikely that we will achieve our target return on tangible equity of more than 12 percent," said RBS, adding the target is achievable in the medium term.

The return on the capital shareholders have in a company is a key measure of profitability, and without the effect of a merger it was only 6.7 percent in the second quarter, according to analysts at ING bank.

Shares in RBS took a beating in morning trading in London, falling by 5.4 percent while the FTSE 100 index was down nearly two percent.

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