Bernstein Downgrades RBS To Market Perform, Warns Of 'The Big Mark To Reality'

Bernstein’s Chirantan Barua downgraded the rating on Royal Bank of Scotland Group PLC RBS from Outperform to Market Perform, while lowering the price target from 450p to 230p.

Outlook Concerns

“The #1 UK Mid-Market and SME bank is now ready to lend after years of restructuring but the market, even after 7 years of deleveraging, is unlikely to turn in the next few years with the global macro deterioration and Brexit killing risk appetite in the first half of 2016,” Barua mentioned.

Barua explained that the expectation had been for the company (following the several levels of restructuring) to be a 32p-37p EPS franchise by 2017 and that the Royal Bank of Scotland would have excess capital of 155p in 2018.

However, the macro outlook for the world in general and the UK in particular having significantly deteriorated, while the prime driver of excess capital, such as legal settlements and disposals, have been pushed out.

Barua Likes The Franchise

“We still like the franchise but the next 12 months will be an uphill task with deteriorating earnings fighting against elusive excess capital,” Barua stated, while adding, “We now take rate rises out of any bank forecasts and wouldn’t be surprised if UK rates moved down rather than up.”