RBS loans news good, but mostly symbolic
Ken Odeluga September 30, 2014 1:49 PM
<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.