RBS Not Worth £4 a Share

Morningstar analysts have downgraded their fair value estimate for Royal Bank of Scotland as it sells off risky assets in a bid to clean up its balance sheet

Erin Davis 17 December, 2013 | 1:32PM
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While the worst is past Royal Bank of Scotland (RBS), its internal bad bank will have about £46 billion of noncore assets that it plans to run-off on an accelerated schedule, which poses significant risks for the bank.

Losses could be higher than expected, and divestitures may not bring the prices RBS is anticipating. While RBS has relatively little exposure to Greece - less than £1 billion - the group has about £35 billion of exposure to Ireland through its Ulster subsidiary. If real estate losses increase in Ireland, losses there could consume a large chunk of RBS' equity and possibly force yet another capital raise.

Shareholders also face the likelihood that the Government will direct RBS' lending with political, rather than business motives, as we have already seen with RBS' decision to increase lending to small and medium sized enterprises (SME). Decisions like these will likely mean lower returns for shareholders, and may involve higher losses over time if RBS is pushed into excessively risky lending.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
NatWest Group PLC216.80 GBP0.00Rating

About Author

Erin Davis  is a senior banking analyst for Morningstar.