LONDON (Bloomberg) — Royal Bank of Scotland Group, the UK's second-biggest bank, reported £1.5 billion pounds ($3 billion) of writedowns from slumping credit markets and said earnings will exceed analysts' estimates this year.

Royal Bank rose 2.7 percent in London trading after it said in a statement yesterday that operating profit is "well ahead" of analysts' forecasts of £9.8 billion. The writedowns included US subprime securities, leveraged loans and assets at ABN Amro Holding NV. They were partially offset by £250 million of accounting gains.

"People were expecting £2 billion or even £2.5 billion," said Colin Morton, a Leeds-based fund manager at Rensburg Fund Management who helps manage £1.5 billion, including Royal Bank shares. "It is as upbeat as you could ever expect it to be."

Royal Bank, Europe's number one provider of loans for leveraged buyouts, is the last of the largest global banks to disclose damages in the subprime rout, which forced financial institutions to write down about $70 billion of assets.

The Edinburgh-based bank said the 16 billion-euro ($23 billion) acquisition of ABN Amro's Asian and securities units accounted for about a fifth of overall writedowns and will add more to earnings than it forecast.

Royal Bank, which initially rose as much as 10 percent on the London Stock Exchange, finished the day up 2.7 percent at 478.5 pence. That extended Wednesday's gain of six percent and pared this year's loss to 28 percent.

The decline at Royal Bank was twice as large as the Bloomberg Europe Banks and Financial Service Index's 12 percent drop. Royal Bank resisted pressure to move up yesterday's report to address investor concerns that the ABN Amro acquisition and US subprime meltdown would trigger writedowns approaching the magnitude of $8.4 billion at Merrill Lynch & Co. or $11 billion at Citigroup.

"What we have seen is nervousness," Royal Bank chief executive officer Fred Goodwin told reporters. "I don't think the market singled us out."

Royal Bank will be among the European banks to grow or maintain 2007 profit even after subprime writedowns.

Barclays Plc, Britain's third-biggest bank, booked a writedown of £1.7 billion on subprime-related assets and loans for leveraged buyouts. They were partially offset by accounting gains of about £400 million in the second half. Barclays's net income will be about £4.4 billion this year, down three percent from 2006, according to the mean estimate of 15 estimates compiled by Bloomberg.

London-based HSBC Holdings Plc, Europe's biggest bank by market value, wrote down $925 million for the third quarter. Its net income will rise 22 percent this year to about $19.2 billion, according to the mean estimate of 17 analysts.

"Clearly the US banks had considerably higher exposure to structured vehicles, but I don't think anyone necessarily believes that we have seen an end to the writedowns at European banks," said Robert Talbut, chief investment officer at London-based Royal London Asset Management. He helps manage about £31 billion, including Royal Bank stock.

Royal Bank's writedowns were in line with the £1.5 billion-median estimate of five analysts surveyed by Bloomberg. The bank will write down about £950 million in assets backed by US subprime mortgages, including collateralised debt obligations, £250 million on leveraged loans, and £300 million of US mortgage-related assets at ABN Amro.

The markdowns were partially offset by an accounting gain of £250 million on Royal Bank's debt. The losses at ABN Amro will be recorded as an "acquisition accounting adjustment" and won't reduce Royal Bank's earnings, it said.

"Hats off to them just for quantifying the exposures and losses at ABN Amro," said Alex Potter, a London-based analyst at Collins Stewart, who upgraded the stock to "trading buy" from "hold" yesterday.

"That sends a strong message. They have only had the keys for about six weeks."

Royal Bank still has about £3.4 billion of asset-backed securities, which include US subprime home loans, it said. Its ABN Amro capital markets unit has about £1.7 billion in securities that include US subprime assets, it said. Royal Bank has no assets held in structured-investment vehicles or related investments known as SIV-lites, it said.

Royal Bank's subprime-related assets are about half the £10.8 billion of loans and securities tied to US subprime home loans at Barclays at the end of October, according to figures released by both companies.

"We have tried to project total delinquencies over the life of these instruments," Goodwin said on a conference call with analysts. "We feel they are pretty conservative. It's not impossible they will go up."

Royal Bank got about a quarter of pretax profit from the US before it teamed with Banco Santander SA and Fortis to buy Amsterdam-based ABN Amro. The acquisition will contribute more to Royal Bank's earnings and return on investment than it previously indicated, it said.

"We feel we are in a much better position" with the acquisition of ABN Amro to face a global slowdown, Goodwin said on the call. "We now anticipate better financial returns than we envisaged at the time of the bid."

ABN Amro's adjusted earnings for 2007 will be 2.30 euros a share, consistent with guidance it gave September 17, Royal Bank said. The bank had predicted about 1.7 billion euros in cost and revenue gains by 2010. It also said it would boost earnings by about seven percent and return on investment by about 13 percent in three years. Royal Bank now plans to achieve these objectives more quickly, helped by gains in Asia, Goodwin said.

"Today's statement should greatly restore investor confidence," said Keith Bowman, an analyst at Hargreaves Lansdown Stockbrokers in London. "Group funding levels are forecast to remain within target, while the acquisition of ABN further strengthens the group's interests in growing Asian arenas."