RBS boosted by Goldman Sachs upgrade to 'buy'

The upgrade was premised on three key points.

Goldman said RBS’s valuation now screens as attractive. The shares have de-rated and are trading at a 50% discount to Lloyds on a trailing price to tangible book value ratio.

It also said the bank was well positioned to substantially expand its market shares in the attractive domestic mortgage market as its large share in current accounts offers a strong funding advantage.

Finally, GS said the over 70% cut in its investment banking risk-weighted assets will over time free up capital and help RBS improve underlying returns, narrowing the gap versus Lloyds.

Goldman said it prefers RBS over Lloyds Banking Group, which it rates at ‘neutral’, on valuation grounds and net interest income trends.

GS said that following analysis of the two banks’ funding structures, it founds RBS has a funding advantage, paying on average around 40 basis points less for deposits.

“This advantage appears structural, driven by RBS’s larger share of current accounts (18% market share versus only 8% in mortgages). We believe this underpins RBS’s aggressive growth ambitions in UK mortgages.”

GS said key risks to its view on RBS relate to litigation, regulatory changes, execution risk in disposing of Williams & Glyn, the UK’s upcoming referendum on the EU and higher-than-expected exit losses in running down legacy IB assets.

Goldman trimmed its price target on RBS to 375p from 380p.