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Overall investor sentiment surounding Royal Bank of Scotland shares is apparently declining, creating a possible new short opportunity for traders.

With payment protection insurance (PPI) payout provision and the underperformance of Natwest Markets wiping out profits, the overall sentiment score for the Royal Bank of Scotland Group (RBS) was significantly down in the third quarter (Q3) of 2019, according to GlobalData, a leading data and analytics company.

GlobalData’s Company Filing Analytics platform, which analyzes and showcases sentiments across companies and sectors by scanning through earning transcripts and filing documents, has found a 23.2% decline in the overall sentiment score of RBS in Q3 2019 as compared to Q2 2019.

RBS reported a loss of £209 million during Q3 2019 compared with a profit of £1,703 million reported in Q2 2019. The group’s performance was hit by the additional provision of £900 million for PPI compensation payouts, which is a fallout of higher than expected claims volume.

NatWest Markets is a problem for RBS shareholders

The underperformance of Natwest Markets, which generated an operating loss of £193 million, also significantly affected the group’s bottom-line in Q3 2019.

The group was alleged of misselling PPI and the provision was to compensate customers, who were mis-sold such policies. During Q3 2019 itself, RBS received more than 500,000 complaints related to PPI claims.

RBS was fined for several incidences of technical glitch, which affected its banking operations. The bank was also fined in the past by regulatory authorities over allegations of money laundering.

Aurojyoti Bose, Lead Analyst at GlobalData, says:

“With the group already experiencing a near-collapse followed by a government bailout in 2008 and returning to profit only in 2017 after almost a decade of losses, such overheads in the form of compensation payouts, settlements or fines/penalties may turn out to be a serious concern and make investors wary.”

The group’s return on tangible equity (ROTE) stood at -3.8% in Q3 2019 as compared to 15.8% in the previous quarter and it is unlikely for the group to achieve its 2020 ROTE target of more than 12%, which may also dent investor sentiment.

During 2019 (January–25 November), RBS share prices fell down below the level of 200p for the first time in Q3 with share price down to the lowest level of the year in August.

Bose concludes:

“With Alison Rose taking over as the new CEO of the group on 1 November 2019, it will be interesting to see what would be her strategies towards returning the group to profits.”

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Please note this article does not constitute investment advice. Investors are encouraged to do their own research beforehand or consult a professional advisor.

Stuart Fieldhouse

Stuart Fieldhouse

Stuart Fieldhouse has spent 25 years in journalism and marketing, including as a wealth management editor for the Financial Times group, covering capital markets and international private banking, and as an investment banking correspondent for Euromoney in Hong Kong. He was the founder editor of The Hedge Fund Journal.

Stuart has worked at CMC Markets, supporting the re-launch of its global financial spread betting and CFD trading platforms. He is also the author of two books on trading, published by Financial Times Pearson. Based in The Armchair Trader’s London office, Stuart continues to advise fund managers, private banks, family offices and other financial institutions.

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