Investec upgrades RBS to 'hold' after recent weakness

12th Mar 2015 10:41

Investec has raised its stance on UK banking group RBS from 'sell' to 'hold' following a recent drop in the shares over the last few weeks.Analyst Ian Gordon said RBS has "duly delivered a useful 11% correction since its 2014 results on 26 February which triggers an upgrade from 'sell' to 'hold'."Following the results, Gordon said he now forecasts RBS to record an eight successive attributable loss in 2015, predicting a loss of £0.9bn. He had previously estimated a "break-even" result for this year, but has cut his profit forecasts and raised his restructuring cost predictions due to the accelerated shrinkage of the corporate and institutional banking (C&IB) division.As such, Investec's target price for the stock has been cut from 380p to 375p."However, looking beyond 2015/16 we believe we now have much better line of sight as to what shape of 'normalised' group will emerge," Gordon said."Risk-weighted assets are already down from £495bn in 2012 to £356bn in 2014, and, with further sharp cuts in C&IB and an exit from [US division] Citizens, we model £247bn by 2017."This should help take the common-equity tier-one ratio to 16.5% by 2017, far above RBS' latest target of 13%, Gordon said.In the near term, he forecasts only a 2-5% return on equity in 2016/17, but said that a RoE greater than 10% "was and remains a credible 2019 objective".The shares were up 1.4% at 365.13p by 11:23.