Ulster Bank parent's Royal Bank of Scotland unexpectedly posted a second-quarter profit as the British government prepares to reduce its stake in the lender, even as it set aside more money for litigation and restructuring.

Net income was £293 million, up from £230 million in the year-earlier period. Analysts had expected a loss of £259 million in the period, according to the average estimate of 10 in a company survey.

Chief executive officer Ross McEwan is selling assets and cutting thousands of jobs to return the bank to annual profit ahead of the UK government’s plans to sell £25 billion of its RBS shares within five years.

The bank took a £1.1 billion restructuring charge in the second quarter and £459 million for conduct and litigation. The results follow a £446 million loss for the first quarter when the bank set aside money for currency-manipulation probes. Chancellor of the Exchequer George Osborne has said he plans to start reducing the UK's 78 per cent stake in RBS within months, even though it may cause a loss for taxpayers, who provided RBS with £45.5 billion of capital during the financial crisis.

Profit excluding restructuring costs and conduct and litigation charges was £1.8 billion, down from £1.9 billion a year earlier. That beat the £1.3 billion estimate of four analysts in a Bloomberg survey. The bank’s common equity Tier 1 ratio, a measure of financial strength, was at 12.3 per cent at the end of the first half, up from 11.5 per cent at the end of March. The stock has slumped about 10 per cent this year, the worst performing major U.lender.

Lloyds Banking Group Plc has gained 13 per cent as the government reduced its stake to less than 15 per cent.

Bloomberg