RBS on the road to recovery

This banking behemoth has had its fair share of ups and downs, Richard Hunter, head of markets at interactive investor, talks us through the obstacles that they have faced.

The Royal Bank of Scotland Group continues to take small steps, rather than large strides, but even so is demonstrating something of a return to health.

There have been three major hurdles for RBS  to overcome, in the form of settlement of the US legacy issues once and for all, the removal of the UK government stake and – a particular bete noire for investors - the lack of a dividend. The provision for the US issues has been set aside and, once settled, a dividend payment will kick into force. Meanwhile, the government stake was recently reduced, although there is a long way to go since ownership still stands at just over 62%. Elsewhere there are pockets which provide some optimism, such as the reduction of expenses in general and a capital cushion which is reassuringly high.

Some of the other key metrics, however, do not make for particularly pleasant reading. The Net Interest Margin remains in decline, total income also fell and after a good first quarter the NatWest Markets division seems to have had something of a relapse. Earnings per share have also fallen and the return on equity figure does not compare favourably with others within the sector.

Whilst prospects for the bank have moved on over the last year, the share price has not. It is virtually flat over the period (down 0.3%) as compared to a 2.2% hike for the wider FTSE 100, and any rise in the price following the part-disposal of the government stake has been erased as the shares have slipped 7% over the last three months. Nonetheless, there has been progress in terms of the market consensus, which has recently nudged higher to a buy recommendation on further recovery potential.