Broker snap: HSBC & Barclays preferred to RBS

9th Nov 2009 13:26

Nomura Securities continues to take a cautious stance on rescue case Royal Bank of Scotland and recommends clients should reduce exposure to the stock.'We do not believe the group has surplus capital, as the apparently significant capital strengthening will be absorbed by further losses and involuntary RWA [risk weighted assets] growth. Meanwhile, we would argue the Q3 [third quarter] figures were equivalent to normalised PBT [profit before tax] of some £7bn, or EPS [earnings per share] of 3.7p, with GBM [Global Banking and Markets], the main profit driver, being below our expectations,' said Nomura analyst Robert Law.The £7bn profit before tax figure is 'well below the £9bn figure we have been using for normalised PBT,' Law notes.The forced sales ordered by the European Union will reduce profitability further. The businesses on the chopping block generate around £1.2bn of profit before tax each year, equivalent to earnings per share of 0.8p.'Until we see potential for EPS justifying the share price we remain negative and prefer HSBC and Barclays,' the broker concludes.Nomura has a price target of 31p for RBS.