RBS Royal Bank of Scotland Group PLC

By Max Colchester 

LONDON-- Royal Bank of Scotland Group PLC pushed back its long-term financial goals, bogged down by lower interest rates and a deepening struggle to reorganize its franchise.

The 73% U.K. government-owned bank said on Friday that it fell to a GBP469 million ($570.3 million) loss in the quarter to end-September from a GBP960 million profit in the same period last year. The British bank incurred several one-off items including a GBP425 million legal provision, mainly related to settlements with U.S. authorities over the sale of mortgage-backed securities.

RBS said it would take longer than planned to achieve 2019 profitability targets and said it was uncertain on when it would be able to resume paying dividends.

The bank faces multiple challenges. They range from lower interest rates in the aftermath of the U.K. vote to leave the European Union to hammering out legal settlements with U.S. authorities and trying to split off 300 branches to meet EU rules on state aid after the bank's GBP45.5 billion government bailout in 2008.

Half way into its five-year turnaround plan, deal with these numerous issues "is the most challenging part of our plan," said Chief Executive Ross McEwan.

RBS said third-quarter revenue rose slightly to GBP3.3 billion from GBP3.1 billion in the same period a year ago. The bank continued to refocus on its U.K. retail and corporate business.

Stripping out restructuring charges, fines and taxes, the bank made a GBP1.3 billion operating profit, bolstered by a surprisingly strong performance at its investment bank. This came in above analysts' expectations, helping push shares up 1% in morning trading.

RBS confirmed that it won't hit a 2017 deadline to separate its Williams & Glyn unit to meet European state aid rules following the banks taxpayer bailout. RBS is now in discussion with the U.K. Treasury on how to proceed with negotiations with the European Commission. The bank may try and sell parts of Williams & Glyn to a buyer, Mr. McEwan said. Several interest parties are looking at the branches.

The problems at Williams & Glyn would push expected restructuring charges up by GBP500 million for the year. The bank spent GBP469 million on restructuring its business in the quarter. It also wrote down the value of its deferred tax assets.

So far the effects of Brexit remain muted, Mr. McEwan said, but the bank is still bracing for more uncertainty in the months ahead.

In February next year RBS's executives will lay out a new plan for the bank, which will likely see more job reductions and a further drive to cut the balance sheet. Mr. McEwan said the bank would eventually become a normal lender. "It may just take us a bit longer."

Write to Max Colchester at max.colchester@wsj.com

(END) Dow Jones Newswires

October 28, 2016 04:26 ET (08:26 GMT)

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