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Stocks in Focus: RBS Group Plc

Following the UK budget last week, Philip Hammond, the Chancellor of the Exchequer announced plans to begin selling the government’s remaining 71 per cent stake in The Royal Bank of Scotland (RBS) towards the end of 2018. It is his intention that the FTSE 100 bank will once again become entirely privatised. At the height of the financial crisis, RBS had no choice but to accept a £45bn government bail-out on the back of the largest annual loss in UK corporate history.

On previous occasions, the Chancellor has avoided setting a deadline until RBS had reached an agreement with the U.S. Department of Justice (DoJ) over a multi-billion dollar fine for miss-selling mortgage-backed securities in the lead-up to the 2008 financial crisis.

Unsurprisingly, the announcement came shortly after a good set of third quarter results, which demonstrated a broadly reassuring outlook for RBS. Following several years at a loss, RBS posted a net profit of £392m for the quarter, which was largely attributed to lower costs and significantly lower restructuring and litigation charges compared to 2016. More importantly, a number of legacy issues it has faced since the crisis appear to be coming to a close including the DoJ fine which the Bank expects to settle in the coming months although it is still unclear what the final bill may be.

It is promising to see that the business appears to be on track to achieve its 2018 targets and hopefully see its first full year of net profit since the bail-out. If its recovery continues, investors should eventually look forward to a reinstated dividend. However, RBS still faces a number of risks given that it is significantly geared towards the UK in the face of Brexit and there are still other litigation cases yet to be settled.

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