Why Shares In Royal Bank of Scotland Group plc Soared Today

Although we don’t believe in timing the market or panicking over every stock fluctuation, understanding how a business is performing, competing and changing is vital to sensible investment.

RBSWhat: Shares in Royal Bank of Scotland (LSE: RBS) (NYSE: RBS.US) jumped up by over 14% in early trade this morning, following the week-early release of preliminary interim results for the first half.

So what: At £2.65bn, pre-tax profits rocketed to almost double that of those posted at half-time last year (£1.37bn), boosted by £191m from the sale of its remaining interest in Direct Line in the first quarter as well as a writedown of £130m worth of goodwill in the second quarter.

Operating profit is expected to almost quadruple to £2.6bn from £708m at this stage, making this RBS’s highest half-time profits since the bailout in 2008.

Another unexpected surprise was that the figure set aside allowing for impairment losses came in lower than expected, from £2.15bn last year to just £269m, as credit conditions continued to improve across the UK and Ireland.

Now what: Despite the better-than-expected results, RBS management remain cautious over the near future. Ross McEwan, Chief Executive, commented:

We are actively managing down a slate of significant legacy issues.  This includes significant conduct and litigation issues that will likely hit our profits going forward. I am pleased we have had two good quarters, but no one should get ahead of themselves here – there are bumps in the road ahead of us.”

“Today’s results are pleasing but no one at this bank is complacent about the challenges ahead.”

As yet, there’s still no sign of the bank paying a dividend, which some shareholders were hoping for some news on, but that hasn’t stopped investors piling in this morning.

Investors have short memories. If the banks deliver profits and dividends and there are no more blow-ups for a few years, then they'll be trusted again.

There are many different ways to value a bank, of course, and tangible book value is only one thing to consider. You should download the Motley Fool's free guide to bank shares to discover the other key factors.

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Sam Robson has no position in any shares mentioned. The Motley Fool has no position in any of the shares mentioned.