SHARES in Royal Bank of Scotland fell by nearly five per cent as the prospect of a multi-billion-dollar settlement in the US took the shine off the institution’s first annual profit in a decade.

Chief executive Ross McEwan hailed the profit as a “symbolic moment” for the lender, declaring that the state-owned bank’s “strategic plan is working”.

The bank, which is 70 per cent owned by UK taxpayers, made a bottom-line profit of £752 million in 2017. It was its first profit since before its £45 billion bailout by the Government during the financial crisis of 2008 and 2009, having made a near-£7bn loss the year before.

Profits at the bank were driven by a 36 per cent fall in operating expenses to £10.4bn, with costs relating to litigation and conduct dropping to £1.3bn from £5.9bn in 2016.

As well as reduced costs, Mr McEwan pointed to increased income and an improved capital position, while stating that the bank is moving closer to the point of resuming dividends for shareholders.

But analysts warned that a multi-billion-dollar settlement with the US Department of Justice over

the sale of residential mortgage backed securities before the financial crisis could impact profits in the current year. Estimates of the likely value of the settlement vary from £5bn to £12bn.

Laith Khalaf, senior analyst at stockbroker Hargreaves Lansdown, said: “Two very big shadows still loom over RBS. One is the impending fine from the US Department of Justice, which is going to take a big slice out of the bank’s 2018 profits. The other is the large taxpayer stake, which has to be sold off at some point.

“That selling activity is going to put downward pressure on the bank’s share price, so until it’s materially completed, the market isn’t going to get too excited about RBS. Indeed with the price now standing at around half of the Government’s break-even point, the taxpayer’s still going to come out of this nursing a significant loss.”

The bank itself gave no update on the US situation.

Asked whether the bank’s ability to make a profit in 2018 would depend on the settlement, chief financial offer Ewen Stevenson said it would be “speculative to say”. But he said it would be a factor.

Meanwhile, Mr McEwan underlined the institution’s increasing focus on digital banking, despite heavy criticism over its swingeing branch closure programme.

He responded to questions about branch cuts by highlighting falling visitor numbers at its banks and the growing use of online banking, including surging consumer use of the RBS mobile app.

Despite the public outcry which met plans to axe a further 62 branches in Scotland, around one-third of its total in the country, Mr McEwan underlined the bank’s determination to accelerate digital innovation, including the use of artificial intelligence.

He stated that a key priority will be to “shift the focus away from existing technology and property assets to create a “digitally first” bank. Asked how the digital drive would impact on the bank’s branch network and headcount, Mr McEwan replied: “Customers are really changing the way they operate. In the last three years, usage of the branch network is down 36 per cent. That is a huge drop. At the same, just in the last year there has been a 14 per cent increase in mobile transactions, so you are seeing a big swing towards mobile.”

He added: “Branch network is very important to us. It is our sales and service operation. We do need to have physical distribution for customers … but there is a big change in the way we are there for customers.”

Mr McEwan, meanwhile, reiterated that the report published this week on the bank’s mistreatment of business customers by is Global Restructuring Group between 2008 and 2013 “makes for very difficult reading”. He said: “As I have said before, we are deeply sorry that customers did not receive the experience they should have done while in GRG.”

Noting that there are currently 1,200 businesses going through the complaints process, he added: “We did not get it right for our customers when they needed us most when their businesses were struggling. That’s why it’s really important that we have got the complaints process.”

Asked whether the GRG fall-out would affect any move by the Government to sell its stake, Mr McEwan said: “I don’t think there is any reason why that should hold any sale back from a Government perspective.”

Mr Khalaf said: “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.”

Shares closed down 13.6p at 268.4p.