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RBS share price: four things to watch out for in its full-year results

Royal Bank of Scotland will release its annual earnings on Friday and with analysts forecasting a strong end to 2018 for the UK lender there are reports that the British government is considering a partial sell-down of its stake.

The UK government is reportedly considering a partial sell-down of its stake in Royal Bank of Scotland (RBS) following the release of the lender’s full-year earnings report on Friday, with analysts expecting the bank’s profits to double.

‘RBS shares have already rallied by 23% over the past two months,’ Investec analyst Ian Gordon said in a note to investors. ‘It’s (almost) time for the UK Government to leave. Another circa 10% or so and we suspect that it will become a willing seller again.’

Despite the British government and RBS providing no comment to substantiate the rumours of a sell-down, the bank’s shareholders approved a plan to acquire up to 5% of its shares when the government eventually sells at a meeting in Edinburgh on Wednesday last week.

‘The timing of any future share sales is highly uncertain and entirely in the hands of the Treasury,’ RBS Chairman Howard Davies said at a shareholders meeting.

1: RBS set to pay out £1 billion dividend

With the UK lender expected to record its second year of profits on Friday, there are also reports that the bank will use its trading update to announce a £1 billion dividend pay-out, providing a major boost in confidence for long-suffering shareholders and taxpayers.

Analysts are forecasting that the bank will issue a special dividend of 3p a share on top of an ordinary dividend of 6p a share in its full-year earnings report on Friday.

The UK Treasury controls a 62.3% stake in RBS, with government coffers in line for a £675 million windfall if reports of a special dividend turnout to be true.

It has taken RBS until 2017 to return to profit after the lender received a government bailout valued at around £45 billion following the 2008 financial crisis, an event which also led to the bank being fined $5.5 billion by the US Department of Justice over its mis-selling of toxic mortgage bonds.

2: RBS profits set to double

On Friday, the lender is forecast to record its second consecutive year of profits since its government bailout a decade ago, with the bank expected to end the year around £1.4 billion in the black.

If RBS is able to meet analysts’ expectations, it will double its profits from the previous year which came in at £752 million, helping the lender to convince the UK government that now is the right time to sell-down its stake in the bank.

3: UK government may wait for RBS stock to rise before selling down stake

Despite the mounting pressure for the government to sell-down its stake in RBS following what is expected to be its second consecutive year of profitability the Treasury stands to lose a lot of money due to the state of the bank’s share price.

As it stands, the bank’s share price is trading at around 238p a share, with RBS initially bailed out at 502p a share – meaning that if the government were to sell-down its shareholding in the lender it would do so at a significant loss.

The government has said that it plans to sell-down its remaining 62.4% stake in the UK lender by 2024, so it may want to hold out until the bank’s share price regains some of its losses.

However, the Treasury is also likely mindful about the potential impact that Brexit could have over the short to medium-term and may think it wise to sell down a small portion of its holding ahead of the Britain’s departure from the EU.

4: Brexit remains a barrier to government sell-down

A key issue that investors will be focus on when RBS announces its results on Friday will be its stance on Brexit, with the lender seeing its share price take a it after it announced a £100 million charge to reflect the ‘more uncertain economic outlook’ in the UK ahead of the March 29 it its third quarter earnings.

‘After a poor 2018 the share price has regained some upward momentum this year,’ analysts at The Share Centre said. ‘Investors will be hoping for better news on revenues and impairments over the final quarter.’

‘Other areas of interest will be the group's outlook, especially relating to Brexit, future dividend policy and any further news on buying back shares from the Government,’ analysts added.

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