RBS earnings: what can we expect?

Next week sees Royal Bank of Scotland publish its full-year results, but it would be wise not to expect too much from this shrunken titan of the pre-2008 world.

RBS is the bank that hasn’t moved on. That might sound cruel, but when compared with peer Lloyds – also rescued by the taxpayer in the dark days of 2008 – the bank is still a long way from returning to health.

The share price performance is the clearest indication of this. Over the past year alone, Lloyds is up 44.5%, compared to an RBS share price that has barely budged; up 0.08%. Since the beginning of 2012, the figures are better, with RBS returning 77%. Over the same period, however, Lloyds is up 228%. When you consider that the government has already begun selling its stake in Lloyds, the difference is even starker.

In terms of next week’s results, investors should look out for any increase in litigation payments, after the recent update showed that the board had set aside £1.9 billion. There are also PPI claims and other mis-selling claims to consider, which are unlikely to disappear soon.

RBS is expecting a return-to-profit, but this does not mean the bank is out of the woods yet. Its investment banking division still has a giant question mark hovering over it, with any sale likely to cost the bank a sizeable sum. Meanwhile, political interference makes long-term decision-making difficult.

The RBS share price appears to have hit resistance for the time being around 360p, and could see sustained weakness ahead of next week. Expectations are fairly limited for the results, which leaves open the possibility of some sort of rally, and for now I would incline towards a cautious ‘buy’ for the shares, given that they remain in the uptrend that began back in summer 2012.

RBS chart

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