Broker snap: Credit Suisse reiterates underperform on RBS

25th Sep 2012 11:05

Commenting on Royal Bank of Scotland´s presentation at the Bank of England Merrill Lynch annual banking conference in London this morning analysts at Credit Suisse had this to say: "Overall the update was broadly in line with previous guidance, although management highlighted a strong Q3 performance so far and some additional cost cutting. With the stock having rallied strongly in the last month with the sector we don't see this event as changing the investment case for RBS, trading at 0.6 times its estimated 2013 tangible nest asset value for a 2% return on tangible equity ( RoTE), we remain Underperform (Target price: 180p), we see below sector profitability in the medium term and believe a more transformational restructuring is necessary." RBS also reiterated its main medium-term divisional targets, Credit Suisse points out, including a return on equity (RoE) in line with most industry peers, Basel 3 risk weighted assets (RWAs) of £110bn medium term, from circa £145bn at H1 2012, with £15bn reduction from portfolio restructuring, £10bn from mitigation and £10bn from hedging and regulatory approvals. RBS is also now expecting an 8.6% higher headcount reduction - of 3,800 from 3,500.Lastly, the broker highlights that: "Whilst admitting that ratings downgrades had a negative impact, especially with certain counterparties, they said that they were positively surprised about client willingness to put RBS downgrades in a broader industry context."AB