• CEO Alison Rose pledges to take the bank forward into the next era by cutting back complexity and becoming more sustainable through reducing carbon emissions associated with its loan-book
• As a result, long-term profit targets have been cut and its investment bank arm has been slashed in size as the bank claimed too much of its potential value is locked in to complex business lines
• Strategic shift will cloud what was a positive Q4 for the group where total income and operating profit both came in higher than consensus estimates at £14.25bn and £4.23bn respectively
• Recommendation: With uncertainty hanging in the air regarding this strategic move and the difficult rate environment for banks we maintain our ‘Hold’ rating

RBS plans to rename itself as Natwest Group in a structural overhaul of the business. Recently appointed CEO Alison Rose has pledged to take the bank forward into the next era by cutting back complexity and building a more sustainable business through reducing carbon emissions associated with its loan-book. As a result of the overhaul, long-term profit targets have been cut and its investment bank arm has been slashed in size as the bank claimed too much of its potential value is locked into complex business lines.

This strategic shift will cloud what was a positive Q4 for the group, where total income and operating profit both came in higher than consensus estimates at £14.25bn and £4.23bn respectively. The bank now expects in medium to long term return on tangible equity to be in the range of 9-11%.

As expected, results today have been clouded by the structural overhaul of the now Natwest Group. Moving focus away from the core philosophy of driving shareholder returns to promote a more sustainable core business alongside the cautious outlook surrounding future growth explains the trepidation in the share price this morning. It appears not only RBS but others are entering a period of change in the industry pushed by an evolving market environment and stakeholder interests.

The bank has a history of restructuring, although time will tell whether this is the right move for the historic bank. There’s still a lot of uncertainty in the air regarding this strategic move and, as a result of this and the difficult rate environment for banks, we suggest this as a ‘HOLD’ rating for now.

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