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RBS share price slows amid fears of another decline in profits

Bank earnings are back on the agenda, and with RBS gains starting to slow, will Brexit woes continue to hold back profits?

The Royal Bank of Scotland (RBS) has been on a bumpy ride since their rescue in the wake of the 2007 financial crisis. The government’s bailout programme may have saved the firm, yet their continued custodianship is often seen as a negative, as the government holds back the bank from riskier practices. While the government plans to fully divest by 2023, the they are still majority shareholders, owning a massive 62% of the firm despite a clear desire to lower that stake.

The bank has been in the news recently after its chief executive officer (CEO), Ross McEwan, left to head up the National Australia Bank (NAB). McEwan was largely held in high regard, with many seeing him as being the man to have turned RBS around over the course of his six-year stint at the bank. We are now seeing talk of RBS poaching Ian Stewart, boss of HSBC’s UK operation, as the new CEO.

When does the RBS report its Q2 earnings?

With second quarter (Q2) earnings released by a number of UK-listed banks next week, the focus is due to shift across the Atlantic in the wake of US firms provided somewhat mixed figures. RBS earnings are due on Friday 2 August, following Lloyds and Barclays releases in the two prior days. That should ensure a degree of volatility throughout the week, with traders responding to competitor figures as a guide on how RBS figures could come in.

Net profit for the previous quarter dropped by 11.3%

The past three months have been tough for RBS shareholders, with Q1 earnings providing a sharp decline in the share price. A sharp decline in net profits (-11.3%) came as the bank struggled to operate within an economy which is being hit by significant Brexit uncertainty. Unfortunately, that uncertainty has failed to recede, with the prospects of a no-deal Brexit greater than ever after Boris Johnson’s appointment as the new prime minister. With consumer and business confidence suffering as a result of these Brexit fears, there is reason to believe that we could see further trouble for RBS as investment decisions are delayed until we find a resolution. Keep an eye out for the firm’s outlook given the expectations that we will find the UK out of the EU at the end of October.

Recent releases throughout US banks has held a light to the shrinking net-interest margin, which has been highlighted as a potential issue ahead of rate cuts from the Federal Reserve (Fed). Markets are currently pricing a 51% chance that the Bank of England (BoE) will cut rates by the end of the year, which largely reflects the perceived chance of a no-deal Brexit. With BoE governor Mark Carney citing a no-deal Brexit as driving up the potential for a rate cut, such a move would likely drive net-interest margins lower, following a six basis points decline (to 1.89%) in Q1.

RBS shares: how do the charts look?

Looking at the RBS chart, we have seen a welcome month of respite through July, with the stock recovering almost 7% over the course of the past 28 days.

The wider trend remains bearish, yet this recent rise has started to see the bulls get back in charge after a decline into the 76.4% retracement level. With the stochastic rising out of the oversold region, it could look like we are due a long-standing rally back towards trendline resistance. However, that momentum seems to be slowing as the stock surge starts to lose pace.

On the shorter term, we have seen the price decline into the first swing low, following on from a failed attempt to break through the recent high of £2.32. This points towards a potential period of downside, as markets prepare for the upcoming earnings release. Thus, the short-term outlook will be determined by the eventual breakout from the £2.26-£2.32 zone, with next week’s RBS figures providing a lead on whether we will see the July rally unravel or persist.

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