Broker snap: Analysts wary of downside risks at RBS

28th Jan 2014 09:13

Following the news that RBS has put aside a further three billion pounds to cover new claims, a large number of analysts have maintained their negative views on the stock, recommending investors to sell the shares ahead of the bank's full-year results next month.The new provisions - seen as an attempt by the new Chief Executive to 'kitchen sink' numbers before the 2013 results due February 27th - are expected to drag the bank to a £7-8bn pre-tax loss for last year.Analysts at Citi kept their 'sell' recommendation, pointing out that RBS' fully-loaded core tier-1 capital ratio is now expected to be just 8.1-8.5% at the end of 2013, compared with the previous guidance of 9%. "Meanwhile, additional one-off charges cannot be ruled out (relating to DAS, FHFA, 'bad bank' shrinkage, etc) and the risk of further political interference ahead of the May 2015 elections should not be underestimated."Nomura maintained its 'reduce' rating for the shares, saying that RBS remains a "challenging complex restructuring story".With the turnaround expected to take a long time - a return to profitability is estimated to take four to five years - "investors will need to be patient with the group to see upside", Nomura said.JPMorgan Cazenove kept its 'underweight' stance, saying that it sees further downside risk to both capital ratios and tangible net asset value estimates "as litigation/redress costs may yet be higher".Deutsche Bank kept a 'sell' rating and Credit Suisse left its recommendation at 'underperform'.In contrast, Morgan Stanley reiterated its 'equalweight' stance - similar to 'neutral' - given that the stock trades at just 5% above its target price.Meanwhile, Investec raised its recommendation from 'sell' to 'hold', saying that the recent de-rating has taken the shares back below its own target price."It may be time to take some profits on short positions, but we urge would-be value investors to stay patient," Investec said.BC