Broker snap: Cancelled branch sale only 'modestly negative' for RBS

15th Oct 2012 09:48

Nomura has maintained its 'reduce' rating and 260p target price for UK banking group Royal Bank of Scotland (RBS) after the news of the cancelled branch sales to Santander.RBS confirmed on Monday morning that Santander UK has pulled out of its greed purchase of 316 of its branches, comprising of RBS branches in England and Wales and the NatWest branch business in Scotland.Nomura labelled the cancellation as "modestly negative": "RBS has been dealing with issues that caused the delay in the sale thus far, and now its cancellation. The headline price tag was already under review as per various press reports (Telegraph, FT etc), so in that sense some negatives were already priced in."The branches that are to be sold made a pre-tax profit of £186m in the first half of this year, equal to 5.8% of RBS's core pre-tax profit. They account for £18.8bn of lending, £20.5bn of deposit and £10.3bn of risk-weighted assets (RWAs). Nomura says that the return on equity (ROE) on capital employed was around 27%."In relation to the capital employed (c£1bn) the headline price of £1.65bn will be difficult to achieve but we already knew from press reports that this number was heading downwards (FT reported on 22 June of a £300m reduction), in line with the reduction in RWAs from the announcement date. In the context of group tangible equity £54.4bn, the lower sale price is only modestly negative."Meanwhile, the broker said that the cancelled sale has raised obvious concerns on the Verde sale between Lloyds and the Co-op. "The main cause of delay has been IT issues, and IT systems vary materially. However, the cancelled RBS-SAN sale highlights the difficultly of the task, and therefore of getting the timeline of the sale right. "Lloyds has already been working on the Verde disposal; to that extent it has a head start and we would be surprised if that deal was cancelled for similar reasons given the better price and the flagged progress to date. Clearly though, the visibility we have on this process from the outside is limited," Nomura said.Shares in RBS were down 0.89% at 268.5p by 09:47, while Lloyds was up 1.5% at 40.3p.BC