RBS loans news good, but mostly symbolic

<p>Royal Bank of Scotland said it’s reducing the level of cash it holds in reserve to cover losses from bad loans. The 80% UK government-owned […]</p>

Royal Bank of Scotland said it’s reducing the level of cash it holds in reserve to cover losses from bad loans.

The 80% UK government-owned bank said it will cut £800m from loan loss provisions after an improvement in the economy, especially in Ireland.

RBS expects losses from bad loans to be “significantly” lower than its previous guidance of £1bn this year, after continued improvement in economic conditions and asset prices.

On the downside though, it said revenues in its corporate & institutional banking unit, which includes its shrunken investment bank, had been weaker than expected in the third quarter.

RBS said it expects its “bad bank”, which holds the assets it no longer wants, will release about £500m of the money previously set aside in the third quarter.

RBS’s Irish subsidiary, Ulster Bank will release about £300m in provisions in the same quarter.

RBS said there remained uncertainties relating to conduct and litigation matters.

Investors cheered this piece of promising news from the bank.

The stock added as much as 4.4% immediately after RBS’s trading statement, though the shares are easing back as I write this.

That makes sense.  An £800m reduction in loan loss provision is just a little more than symbolic, after all.

Consider that RBS loan loss impairments (confirmed bad loans) exceeded £5bn in the final three months of 2013.

Also, RBS’S gross non-performing assets/customer loans and other real estate owned increased to 9.5% of the loan book by the end of last year from 9.1% at end-2012, and from 8.6% at end 2011.

Moving to RBS’s volatile shares, we see the concentration of trading today is on the upside, by a balanced moderate majority, but prices are sitting on top of the 50-day moving average (MA)—they ideally need to stay above that line to bolster the buying case this session.

Moving Average Convergence Divergence (MACD) watchers won’t like the signal line inverting marginally like that.

Today’s volume so far suggests most of us are fairly neutral on this news.

RBS loan loss provision cut


Build your confidence risk free
Join our live webinars for the latest analysis and trading ideas. Register now

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.

For further details see our full non-independent research disclaimer and quarterly summary.