Analysts May Downgrade RBS Following Misconduct Costs

Losses at the Royal Bank of Scotland may worsen in 2016, with bank forced to set aside further provisions to meet litigation claims

Erin Davis 29 February, 2016 | 10:46AM
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Morningstar analysts said the £2.7 billion loss reported by the Royal Bank of Scotland (RBS) last week was in line with expectations. However they warn that 2016 will continue to be “another ugly year” with heavy litigation and restructuring costs continuing.

However, it is not all bad news. Although in the short term the outlook is fairly bleak, Morningstar remains confident that RBS is on the road to recovery: “Our thesis that it is a diamond in the rough--a bank on its way to becoming a profitable one with significant excess capital--remains intact.”

Analysts concede though that this transition to profitability won’t be smooth. It said the drop in share price, following Friday's “messy” fourth quarter results was because the market was disappointed that capital return won’t begin until late 2017 or 2018. Morningstar says though: “We’re less surprised--we had expected this to be a long and bumpy road.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
Lloyds Banking Group PLC46.48 GBP0.00Rating
NatWest Group PLC216.80 GBP0.00Rating

About Author

Erin Davis  is a senior banking analyst for Morningstar.