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RBS reports first annual profit in a decade

State-backed lender Royal Bank of Scotland has reported a profit of £752m for 2017, the first time in a decade it has been in the black.

But shares opened 4% lower as the bank still faces a multibillion-pound US fine over past misconduct and also added £1bn to its bill for restructuring this year and next.

The annual profit compares to a £7bn loss for the year before - which was the latest in a succession of losses going back to the financial crisis, adding up to £58bn.

RBS remains more than 70% owned by the taxpayer after its £45bn bail-out by the Government during the crisis.

The bank's toxic legacy continues to weigh heavily, with a potential fine from the US Department of Justice (DoJ) over the mis-selling of mortgage-backed financial products in the offing.

It warned that this was among legal and regulatory issues that may result in "substantial additional charges and costs" over coming quarters.

Meanwhile there was a warning that this year would see a hit to costs as RBS accelerates its transformation, ramping up restructuring charges by more than £1bn.

RBS said the resolution of the DoJ case will be a "key milestone" as it seeks to start paying out dividends to long-suffering investors as soon as possible.

The bank had looked on course to post yet another annual loss for 2017, had the case reached a likely multibillion-pound settlement in time for the latest results.

Instead, it will continue to haunt RBS this year.

Chief executive Ross McEwan said settling the case - which dates back to the run-up to the financial crisis - was the "one major legacy issue that we have yet to resolve" and that the timing of this was not in its control.

Mr McEwan hailed the transformation of RBS into a "simpler, safer and more customer-focused bank" and its progress in "putting the past behind us".

That effort included putting aside a further £764m of litigation and conduct costs in the fourth quarter of 2017, including £175m added to the bill for the mis-selling of payment protection insurance (PPI) in the UK and £135m for "legacy issues" including tracker mortgages in the Republic of Ireland.

It also included a £442m provision to add to the bank's war chest over mortgage-backed securities in the US - the issue which has been pursued by the DoJ as well as other American authorities.

RBS now has £3.2bn set aside to cover costs arising from the scandal, in addition to the £4bn it has previously paid to the Federal Housing Finance Agency. Some analysts have predicted the DoJ fine could be higher than £5bn.

The bank has also been in the spotlight recently with the release of a report on its controversial treatment of small business customers in the past.

Mr McEwan said the lender accepted it had "got a lot wrong" but that he welcomed the City watchdog's findings that the most serious allegations against it had not been upheld.

Laith Khalaf, senior analyst at Hargreaves Lansdown, said the return to profit was "a stay of execution rather than a pardon" with the US fine likely to hit profits for 2018.

He added: "All in all, it's been a tricky but momentous year for RBS, in which the bank has put to bed many of the legacy issues which have hampered performance since the financial crisis."