Shore stays at buy on RBS following Q1 figures, flags risks to dividend

Analyst Gary Greenwood highlighted management´s remarks that market conditions for Capital Resolution had been "challenging" in the first quarter and how it had flagged up an increased risk of large single-name events which might hurt credit quality due to the uncertain macroeconomic environment.

Nevertheless, whilst RBS´s Core Tier 1 capital fell by 90 basis points to 14.6% it remained well above its minimum target of 13%, resulting in surplus capital on the balance sheet of about £4bn (34p per share), he added.

"While the results themselves are a little disappointing, these have been somewhat overshadowed by yesterday afternoon’s announcement that there is a significant risk that the separation and divestment of Williams & Glyn will not be completed by the 31st December 2017 deadline that the Group has been set by regulators," Greenwood said in a research note sent to clients.

The farce continues?

The successful divestment of that unit was a key hurdle for the restart of dividend payments.

Greenwood had pencilled in a final 2017 dividend of 4.7p rising to 13.3p in 2018, but said it remained to be seen how the rgulator would respond.

"We cannot hide our disappointment with both the results and the announcement of the ongoing delay to the divestment and separation of Williams & Glyn, which has frankly now become farcical, to say the least," the analyst added.

Nevertheless, he stuck by his 'positive' stance on the lender´s shares and his 'buy' recommendation but emphasised that his recommendation rested on RBS being able to overcome most of the issues needed to resume its dividend payments, including a sale of Williams&Glyn and settling outstanding claims linked to residential mortgage backed securities in the US.

Hence, he ranked RBS third in preference behind the likes of Lloyds and Barclays.