As RBS updates the market Helal Miah, Investment Research Analyst at The Share Centre, explains what it means for investors.
RBS turns red following £900mn PPI charges
RBS has reverted back to type, undoing some of the good work in earlier quarters as profits slip into a loss for the third quarter. It was well flagged that UK banks would feel the effects of the surge in PPI claims in the run-up to the deadline, for RBS though this seems to have hit them harder than markets anticipated. The other major factor is the lower interest rate environment which is bringing down net interest margins but also the intense competition in the UK mortgage market. For RBS, net interest margins were 5 basis points lower than the previous quarter, net interest income reduced to £6bn from £6.5bn in the same period last year and below expectations. There were also challenges faced by its investment banking division. As a result of all this, group profits swung from £448m in the same period in 2018 to a loss of £315m in the most recent quarter.
We continue to take the view that RBS faces ongoing challenges, just like any other UK bank. Some of these challenges may become tougher in the highly uncertain economic environment we are in at the moment, but RBS also faces the challenge of continuing with its restructuring programme and making itself a smaller bank. However, investors can take away some positives in that management believe there was a solid underlying operating performance in the tough environment and the PPI issues should be behind us from now. Also we can look forward to Alison Rose’s strategy on the continuing with the turnaround plans to make RBS an investable bank. We remain with our cautious ‘Hold’ for investors seeking capital growth and willing to accept a medium level of risk
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