The Armchair Trader was having coffee yesterday with a contact who has been sub-letting an office in the corporate suites of Royal Bank of Scotland in London. The fact that he was sub-letting an office inside the headquarters of a major UK bank was surprising, but he was also able to tell us that the office of the notorious RBS CEO, Fred ‘The Shred’ Goodwin remains untouched, just as it was when the Great Financial Crisis blew in during 2007/08 and almost took RBS down, costing Goodwin his job. It is a private museum to over weaning ambition.

There will be some out there who have been holding RBS shares for the last nine years, hoping that somehow the stock would recover. The RBS share price chart makes sober reading – the bank’s stock fell off a cliff in February 2007, and has never recovered.



RBS has never really looked in danger of adding any value for shareholders, and most serious investors have washed their hands of the banking stock. The RBS share price seems to now be the province of tracker funds, which have to buy shares due to its size, and the more lazy pension schemes.

Let’s not also forget that the UK government still owns 71% of the bank.

RBS has now said it will close 259 branches and cut over 600 jobs. This is partly being driven by the fact that the entire retail banking industry is heading for a major shake up as more efficient, cheaper digital offerings start to chip away as the dominance of the banking behemoths.

So what are the prospects for the RBS share price?

The market like the results for Q3. After adjusted operating profits, the bank easily beat market expectations in late October thanks to much lower conduct charges and restructuring costs. There was also an impressive 70bp improvement to the closely watched Core Tier 1 capital adequacy ratio.

“Investors are still giving the still state-owned bank the benefit of the doubt as it continues its phoenix-like rise from the financial cr-ashes,” says Michael van Dulken, Head of Research at Accendo Markets. “It may still be a case of ‘next year Rodney’, however, given where the bank has come from in terms of travails…in the grand scheme of things, it’s not that much longer to wait for those long lost dividends.”

Van Dulken points out that resumption of dividends at rival Lloyds has already helped to revive the RBS share price, fueling a 55% bounce from Brexit lows. He also observes that the RBS share price has in fact been performing better than Lloyds since September.

It is certainly not possible for the RBS share price to get much worse, given the size of the firm. Hence, a lot of the risk has already been priced in and investors should be looking for some considerable upside once the UK government washes its hands of its shareholding.

If you are thinking of buying RBS shares, don’t hang on to them for too long, though. There will be some medium term gains, but overall The Armchair Trader is not feeling too optimistic about the ability of the large UK retail banks to cope with social and technological changes over the long term.

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1st December 2017
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