With Bank Rate on ice Investec downgrades RBS

16th Feb 2015 14:19

If there is a single FTSE 100-listed domestic bank that stands to gain when Bank Rate rises that is Royal Bank of Scotland.Unfortunately, Bank Rate is going nowhere any time soon.Current market expectations - as implied by the current yield curve for Gilts - are for Bank Rate to stay on ice until the third quarter of 2016, Investec analyst Ian Gordon pointed out on Monday morning.As well, existing positive spreads on assets are coming under pressure, while improvements in the spreads on the bank's liabilities will be much more limited.That means that any expansion in the lender's net interest margin (NIM) - the difference between what it charges for the funds that it lends out and what it must pay for its own access to capital - may be muted, Gordon explained.The slope of a bond yield curve [Gilts in this case] typically increases most quickly as the economy accelerates and a central bank embarks on a new cycle of interest rate increases.RBS also faces the fresh calls, last week, from members of the Treasury Select Committee for the Financial Conduct Authority (FCA) to investigate allegations of low IRHP redress assessments by RBS relative to other banks' standards.On the positive side of things, once completed - towards the end of 2015 - the sale of Citizens Financial Group in the US will "fix" the majority state-owned lender's capital position.The analyst consensus is also more optimistic than Gordon regarding RBS' earnings per share performance this year. The analyst has pencilled in 2015 EPS of 0.1p versus the Bloomberg estimate of 4.9p.Even so, Investec's Ian Gordon decided to downgrade his recommendation on the shares to 'sell' from 'hold' even while reiterating his price target on the stock at 380p.