Broker snap: Exane BNP Paribas sees 'challenges' ahead for RBS

5th Aug 2013 09:59

'Many challenges' await Ross McEwan, the new Chief Executive Officer at Royal Bank of Scotland (RBS), according to analysts at Exane BNP Paribas who kept their 'neutral' rating for the stock following Friday's results.Exane said that the internal appointment of McEwan is "unlikely to raise confidence that RBS is being managed to maximise returns for all shareholders".The broker said: "With the forced shrinkage of the Markets division already appearing to depress group profitability we are concerned that other initiatives, such as a faster sell-down of Citizens, could yet be forced on the group and be value destructive for shareholders."These risks look to be fairly discounted however, it added.Exane has cut its core earnings per share forecast for this year by 17% and by 6.0% for 2014 and 2015 due to lower revenue and higher costs in the Markets divisions. "Restructuring the Markets division is proving to have a detrimental impact on revenue before costs and capital efficiencies can be realised." Exane reckons that the unit will struggle to generate a double-digit return on tangible equity (RoTE) and foresees a RoTE of just 7.0% by 2015, "suggesting a more radical strategy may be required".The broker maintained its 320p target price for RBS.The stock was down 1.55% at 317.49p by 10:01 on Monday, with a downgrade by Societe Generale to 'sell' also weighing on the share price. JPMorgan Cazenove kept a 'neutral' rating on the stock, while Nomura labelled it as 'reduce' and Deutsche Bank maintained its recommendation as 'sell'.BC