RBS Earnings Outlook
City Index May 3, 2012 12:00 PM
<p>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 […]</p>
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.
StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.
No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.