RBS Earnings Outlook

On Friday 4 May, Royal Bank of Scotland (RBS) updates the market on how the bank has progressed over the first quarter, with most analysts expecting the bank to return to profit. 

Following hot on the heels of Lloyds and Barclays who have both already reported – and to some appeal – RBS is going to be watched intensely by shareholders, spread bettors and CFD traders alike, to see whether the bank, which is majority owned by the tax payer, can tow a similar line to its banking peers. 

When Barclays shares reported earnings on 26 April, their share price rose as much as 2% before setting back to close on the day higher by 0.5%. By comparison, Lloyds Banking Group shares rose an impressive 8% on the day of reporting their respective earnings earlier this week.

Naturally, given the similarities between Royal Bank of Scotland and Lloyds, as two major UK banks bailed out by the UK government, traders will be watching to see whether their respective share price can perform as well as their peers on Friday when they update the market on how the bank has fared in the first quarter.

The market is expecting RBS to report profits of around the £800m mark.

Equally of focus could be any increase in the banks provisions for mis-selling PPI insurance in the face of a deluge of customer claims for repayment. Lloyds announced earlier this week that they took an extra £375m in provision for PPI mis-selling, whilst Barclays set aside an extra £300m and HSBC set aside an additional £400m earlier this year.

So there is every expectation that RBS could follow suit, having already set aside £950m for mis-selling PPI.

One of the issues with RBS being one of the last in the sector to report earnings is the fact that shareholders will have already digested the earnings of its peers and this will naturally now raise expectation levels somewhat, particularly as both Barclays and Lloyds results were pleasing.

When Lloyds reported their earnings, RBS shares saw a similar jump, rallying 4%. This begs the question as to whether traders are setting themselves up for a disappointment.

Should RBS report in line earnings, this may not necessarily correlate with a big rise in the banks shares price given the fact that RBS shares have already rallied somewhat off the back of its sector peers reporting.

Indeed, with RBS shares rallying some 11% since 24 April, this further clouds just how well their update needs to be to significantly increase demand for its shares.

On the other hand, a disappointment could see a reversal in the bank’s share price given the escalating expectations now built into the share price.