A first profit in a decade is not the turning point Royal Bank of Scotland (RBS) investors are looking for. Shares in the company are down 4.3% to 269.9p despite posting a £752m profit for 2017 against expectations for a loss of around £600m.
Several analysts were including a settlement with the Department of Justice in their 2017 forecasts which probably skewed the consensus number.
This legacy issue, relating to the mis-selling of mortgage-backed securities in the financial crisis, remains outstanding with a likely multi-billion dollar fine on its way. Many observers think this could be materially higher than the $4.4bn RBS has already set aside.
INVESTORS STAYING ON THE SIDELINES
Shore Capital analyst Gary Greenwood's attitude is likely to be in line with the rest of the market with this remaining uncertainty still to be addressed. ‘We will await the resolution of the US RMBS settlement before deciding whether it is appropriate to take a more active stance,’ he says.
Although the bank’s capital position improved as it continued to take out costs, the net interest margin, a key measure of a bank’s profitability, fell 5 basis points to 2.13%. Its peer group are achieving around 3%, highlighting the work still to do for RBS to catch up.
The company also faces restructuring charges of £2.5bn over the next two years, against previous guidance for just £1bn.
Jefferies analyst Joseph Dickerson, who rates the stock a ‘buy’ with a 306p price target, says: ‘Investors are likely to be frustrated by the £1.5bn of incremental restructuring costs needed to deliver accelerated investment spend.'
