RBS shares flop on very trying results

Royal Bank of Scotland’s short-lived rally on Friday speaks volumes.

Shareholder relief was evident in the immediate reaction to the group’s third-quarter numbers—Britain’s most troubled lender had, after all, emerged from the summer’s volatility in no worse shape than before, albeit no better.

The shares subsequently slipped from their initial 6% jump to fall 1.7% on the day.

RBS shareholders, who have shown the patience of saints, were acknowledging that the group’s seemingly intractable problems are barely any closer to resolution.

Some £1.194bn of value erosion easily swamped £255m of operating profit, and group return on common equity (ROE) still points to low viability, though at 4.6% the Q3 snapshot is obviously a welcome improvement on the negative trailing 12-month result at end Q2.

Nobody thinks RBS isn’t doing all the right things.

The strategy of Messrs McEwan and Stevenson looks close to optimum, and has helped the group beat adjusted operating profit expectations (£1.3bn) by some £560m.

At some difficult to define time in the future, there are good reasons to think RBS’s big push to remain UK Plc.’s biggest lender will be applauded too.

A 71% jump in adjusted income at Corporate and Investment Banking to £526m would be outstanding, if the context were more favourable.

It helped keep the attributable loss (£469m) contained well below a widely expected plunge of about £900m into the red.

And the extra wiggle room helped pump the all-important common equity tier one ratio up 50 basis points to 15%.

But it won’t mean a thing, unless RBS gets shot of Williams & Glyn.

The ‘albatross division’ ate up another £300m of cash in Q3.

Talks over a sale continue, says its owner, whilst admitting it will miss its own pushed back deadline.

By default, it’s also the EU’s deadline for a sale by the end of 2017, a condition for Europe agreeing to waive state aid rules in 2008.

Meanwhile, no sale, no dividends, according to stipulation by the government, which still owns 70%.

Shareholders also initially applauded the lack of addition to PPI provisions.

We, like others, though, are not entirely convinced that an addition hasn’t just been  delayed.

We note £3.5bn of RBS’s current £4.7bn total PPI set-aside had been utilised by the end of June, whilst the FCA’s new claims deadline is June 2019.

Furthermore, the bolstering of legal provisions, and lack of insight offered into the U.S. mortgage investigation, underlines that provisioning will remain grim.

So yes, RBS is trying. The 35% fall of its stock in the year to date shows the group is successfully trying the patience of  saints.

From a technical chart perspective, shareholders, have not been reassured enough for the stock to recoup all of its Brexit-vote losses.

• Both of the share’s subsequent approaches to 200p have been sold hard, including Friday’s, following Q3 figures.
• The stock looks like it is still resolving several gaps opened into the run-up and in the aftermath of the referendum.
• However, should it remain capped by both resistance mentioned above, and the effect of a falling trend in effect since June 2015, the chance of a drift back toward strong recent support around 170p will remain.
• Buyers will wish to avoid this.
• The clear descending triangle being formed would theoretically point to a surge lower that is equal to the length of the shock-induced tumble on 23rd-27th June, if 170p support breaks.

DAILY CHART

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