Government-owned Royal Bank of Scotland (RBS) gains 3.3% to 235p despite setting aside an extra £3.1bn to cover fines in the US.
US PENALTIES
The provision relates to an expected penalty for selling financial products linked to bad debts before the 2008 financial crisis and takes the total allocated to cover litigation by the US Department of Justice (DoJ) to £6.7bn.
As Jefferies analyst Joseph Dickerson notes: ‘If the $3.8bn provided for today ends up being the settlement amount with the DoJ on such matters, it would be well within market expectations for a $2-$8bn charge and remove a substantial uncertainty surrounding the investment case.’
However, as Dickerson notes full certainty will not be achieved until an official settlement is reached and that would still leave the small matter of the Government’s remaining 71% stake and the disposal of subsidiary Williams & Glyn, which it has been struggling to sell for years thanks to a series of regulatory and operational issues.
BIG LOSS
For the time being any sale of the public stake in RBS has been shelved, in part due to the uncertainty over the DoJ case. Taxpayers look likely to face a substantial loss on any share sale. Only briefly, in August 2010, have the shares traded above the average 502p they were purchased for in 2008 and 2009 during the state-backed bailout.
