ShoreCap places RBS 'under review' after first half results

Royal Bank of Scotland’s rating was placed ‘under review’ from ‘buy’ on Friday by Shore Capital after the lender reported “disappointing” first half results.

The bank posted a £2.05bn loss for the first six months of the year, compared to a £179m loss in the corresponding period a year earlier. Chief executive Ross McEwan blamed the loss on legacy issues.

The group also said it will no longer separate and list its Williams & Glyn unit, blaming lower interest rates and complexities. RBS will now sell the 300-branch High Street bank, with Santander UK understood to be a potential buyer.

RBS issued a cautious outlook, citing increased uncertainty following the UK’s vote to leave the European Union and the lower interest rate environment.

“While the H1 financial performance and the outlook are disappointing (and are likely to drive estimate downgrades) we note that balance sheet capitalisation remains strong with the group reporting a core tier 1 ratio of 14.5% and leverage ratio of 5.2% at the end of the period (broadly consistent with the position at the end of the second quarter), thus putting the group in a good position to absorb further potential losses,” said ShoreCap analyst Gary Greenwood.

“In addition, the overall credit quality of the balance sheet continues to improve with risk elements in lending reducing as a percentage of overall balance sheet exposure. “

Greenwood noted that there appeared to have been no material progress on the resolution of outstanding US RMBS litigation for mis-sold packaged accounts. Significant further provisions are anticipated although management notes that it has had positive discussions with a number of interested parties in respect of Williams & Glyn, the analyst said.

“Uncertainty around the achievement of both outcomes has increased during H1 and so, despite the stock trading at a significant discount to book value, it is hard for us to retain a positive stance. We therefore place our recommendation under review (from buy).”

Shorecap reiterated a target price of 192p.

Shares fell 4.46% to 183.50p at 0930 BST.