Friday tips round-up: RBS

12th Jun 2015 13:00

According to some investors the state is flogging shares of RBS at too low a price - but such criticism is wide of the mark. The government spent £45bn of taxpayers' money to bail-out the lender. So the stock would need to be priced at approximately 455p a share, versus 360p now, in order to recoup the outlay, or so the argument goes. Yet what taxpayers' were bought back in the day wasn't a share in RBS, it was stability in the broader financial sector, and they got it. If RBS, Lloyds and others had not been saved from the fire the resulting collapse in confidence would have cost incalculably more.Furthermore, any sell-down of the stake will be a protracted affair. As the state's weight in RBS decreases that may drive a recovery in the share price - as greater liquidity and less interference lead to greater investability and higher demand. The projected asset shrinkage and exit from its Citizens unit will also boost its capital ratio. That could result in hopes of buybacks or dividends in a year or so. So stop the moaning, writes the Financial Times's Lex column.There is still little clarity as to how the government will go about selling down its 79% stake in RBS, although chances are they will be slowly slipped to City institutions as has been done with Lloyds. That might then be followed by a Sid-style sale of a large stake to retail investors - at a discount - probably next spring. Hence, if you do not believe the shares will rise between now and then, compensating for that discount, you may want to hold off on purchasing them. Nevertheless, the greater certainty that the overhang of shares from the state's holdings is being addressed has already to greater interest in the lender's stock. As the now illiquid market grows deeper so too more investors are likely to find RBS increasingly attractive.The bank is also on track to meet its capital target of 13% as it gets out of Citizens, analysts say. Indeed, it may have a surplus by 2016. RBS also has good exposure to the economic recovery in the UK and SMEs in particular. There is also the prospect of further cost saving and writebacks from earlier bad loans. "On balance, I would be inclined to buy now, though no investor should sit out that Sid-style giveaway" says The Times's Tempus.