Royal Bank of Scotland Group plc (RBS) Ord GBP1
HL comment (1 November 2013)
The question now for is investors is whether to wait for a full transformation which will take several years to deliver. The ongoing lack of a dividend provides another reason to shun the stock, whilst the general situation means that RBS remains a trading stock. As such, there has been some success for nimble investors, who have seen a 33% rise in the price over the last year, as compared to a 16% hike for the wider FTSE100 - although of course in historical terms, the bank is a shadow of its former self. With the perception prevailing that there are lesser problems and better opportunities elsewhere within the sector, we believe the current market consensus of the shares as a sell is likely to remain in place.
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- RBS announced a pre-tax loss of £634 million in the quarter that ended 30 September, after a £496 million accounting charge for improving its own credit position.
- The bank outlined plans for the creation of an internally managed "bad bank" to ring fence and manage bad debt assets forecast by the bank to amount to £38 billion by the end of the year.
- The bank's Core tier 1 capital ratio (financial cushion) improved in the quarter to 11.6% (11.1% in the previous quarter).
- RBS made a further £250 million charge to cover compensations costs for mis-selling of Payment Protection Insurance (PPI). The total bill so far stands at £2.65 billion.
- Group operating profits were also impacted by one-off items that totalled £576 million and included £99 million of regulatory provisions.
- In light of the group's announced strategy to deal with its high risk assets, it expects a significant increase in impairments in Q4 2013 which is added is likely to result in the bank reporting a substantial loss for the full year.
- Being part nationalised appears to place the group at a disadvantage to its competitors without Government interest - lending and staff pay policies have been influenced. The Chairman previously noted "It is a challenge for all those involved to manage the complexities and occasional tensions in this structure. The ability to run the company on a commercial basis can be hindered by elements of the periodic debate on how to respond to such tensions, in the media and elsewhere."
- A separate development saw RBS report it is co-operating with regulators following a global probe by regulators investigating suspected manipulation of the currency market. UBS, Barclays and Deutsche Bank, along with RBS have confirmed they are assisting with the investigation.
- The bank's recovery remains dependent on a sustained economic recovery, particularly in the UK and Ireland, although also for the USA and Europe.
- RBS was rescued with £45.5 billion of British taxpayer cash at the height of the 2008 global financial crisis, making it the world's biggest banking bailout. RBS is 81% government owned.
- The government bought the shares at the height of the financial crisis at just over 500p a share. The shares were trading down 4% at 354p at 09:00am today.
- No dividend is currently being paid.
- The bank announced it is to create an internal "bad-bank" to ring-fence, manage and run-down high risk bad debt assets projected to be in the region of £38 billion by the end of 2013 as part of its efforts to improve its balance sheet.
- The group will accelerate plans to sell its US arm, Citizens via a partial initial public offering (IPO) in 2014, with a full sale by 2016.
- RBS said it will launch a review into how it serves its customers due by February 2014. This strategic review is aimed to drive cost reductions and improve efficiencies from its core businesses during 2014 but will take two to three years to embed.
- The bank said it had maintained its strong track record of running off legacy assets, with its non-core funded balance sheet down £8 billion to £37 billion.
- The reshaping of the group's Markets business also made progress with funded assets down £20 billion to £248 billion and risk-weighted assets (RWAs) down £14 billion to £73 billion.
- The group's capital cushion improved in the quarter is remains robust, with the aim to strengthen it further.
- In August, RBS announced that Ross McEwan, the former head of the bank's retail arm, is to take up the role of CEO, starting in early October. He will be tasked with completing the bank's restructuring programme.
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