RBS settles £5.7bn debt, but we're still £20bn under water

Stephen Hester, chief executive of Royal Bank of Scotland, yesterday claimed that the beleaguered taxpayer-backed bank is "on track" for a recovery despite a £1.4bnfirst-quarter loss.

Mr Hester said that the bank will repay the final £5.7bn tranche of the £164bn of state loans it has received from Britain and the US next week. And RBS will for the first time in two years pay £350m in interest on bonds and dividends on preference shares. These have returned nothing as the bank has been nursed backed to health.

The City largely welcomed the results, with the loss mainly down to falls in the value of the bank's own debt plus a further £125m provision to cover compensation to people who had been mis-sold payment protection insurance.

At the operating level, Mr Hester's preferred measure, RBS's profits, came in at £1.1bn against analysts' predictions of £900m.

But RBS has still not exited the Government's "asset protection scheme" for toxic assets, and the bank boss admitted that a return to dividends on ordinary shares – of which 82 per cent are held by the taxpayer – is "some way off".

He also said it could take a further 18 months to finally defuse the "ticking time bomb" he was handed by his predecessor at RBS, Fred Goodwin.

Mr Hester damped down speculation of a sale of some of the state's stake to Abu Dhabi or another Middle Eastern investor. "As far as I am aware, there is no desire to sell at current share prices and I find that entirely understandable," he said.

After initially rising, shares in the bank finished down 0.08p at 24.47p, less than half the level at which the Government would break even on the more than £40bn that taxpayers pumped in.

Mr Hester admitted that his other job is "to make the new bank operate well", but just how visible the result of this will be depends on Britain's stuttering economy.

"We are fixing the bank but the bank can only do as well as our customers do," he said.

Much of RBS's recovery in the last three months was down to its reshaped investment bank which bounced back from losses of £109m during the final quarter of last year to profits of £824m.