Charles Stanley upgrades RBS to 'hold' after recent falls
Charles Stanley has raised its recommendation for Royal Bank of Scotland from ‘reduce’ to ‘hold’, saying the stock is now “fairly valued” despite remaining misconduct uncertainties.
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The broker said RBS has been the standout laggard in the UK banking sector so far this year, falling by 15%.
Part of the reason was the £446m net loss reported on 30 April for the first quarter compared with consensus forecasts for a £306m profit, mainly due to much higher-than-expected misconduct costs.
Furthermore, the stock has fallen by around 8% over the last three trading sessions on speculation that the bank’s exposure to the mortgage-backed securities mis-selling scandal before the financial crisis could be as high as $13bn compared to the $3bn currently provided. However, RBS has said this would be the “worst-case scenario”.
Charles Stanley analyst Minal Shah said: “With the shares now trading on under 0.9x tangible book for a 12%+ target return on tangible equity, a clear [Lloyds]-style roadmap for RBS to metamorphose into a low-risk, UK-focused retail and commercial bank, and the prospect of significant capital returns once the group achieves a 13% CET1 ratio (11.5% at 31 March 2015), we believe further downside from current levels could be limited.”
RBS stock was up 0.45% at 338.3p by 1116 BST.