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Royal Bank of Scotland (RBS) Q1 Earnings Impress, Stock Down
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The Royal Bank of Scotland Group plc reported first-quarter 2018 net income attributable to its shareholders of £792 million ($1.1 billion), significantly up from £259 million ($338 million) witnessed in the prior-year quarter. Operating income totaled £1.2 billion ($1.7 billion), as compared with £713 million ($930.5 million) incurred in the year-ago quarter.
Contraction in operating expenses displayed prudent expense management. Further, non-interest income escalated and risk-weighted assets decreased. However, investors’ concerns regarding lower net interest margin led the company’s shares on the NYSE to depreciate 2.34%, following the release.
Furthermore, division wise, the NatWest Markets segment reported operating profit in the first quarter, as compared with the loss witnessed in the prior-year period. The RBS International, Commercial & Private Banking (CPB) and Personal & Business Banking (PBB) segments recorded profits in both the reported and the prior-year quarter.
Margin Pressure Persists, Cost Control Effective
Net interest income dipped 4.5% on a year-over-year basis to £2.1 billion ($2.9 billion) in the first quarter. Net interest margin contracted 20 basis points to 2.04%, displaying elevated liquidity, competitive pressures on margin and mix impacts across the core businesses.
Non-interest income came in at £1.2 billion ($1.7 billion), up 22.4% year over year. The upsurge primarily reflected own credit adjustments.
Operating expenses totaled £2 billion ($2.8 billion), plunging 20% year over year. Adjusted operating expenses, excluding strategic costs, litigation and conduct costs, were down 2.1% to £1.8 billion ($2.5 billion). Furthermore, cost to income ratio decreased to 60.5% from 76.1% in the prior-year quarter.
Loan impairment losses were £78 million ($108.6 million), as compared with £46 million in the year-earlier quarter.
Strong Capital Position
As of Mar 31, 2018, The Royal Bank of Scotland exhibited a strong capital position. Funded assets came in at £588.7 billion ($825.1 billion), up from £579.2 billion ($726.9 billion) as of Mar 31, 2017. Total assets were £738.5 billion ($1.04 trillion), down from £783.3 billion ($983 billion) as of Mar 31, 2017.
Net loans and advances to customers were £319.1 billion ($447.3 billion), down from £326.7 billion ($410 billion) as of Mar 31, 2017. Loan to deposit ratio was 89% compared with 93% as of Mar 31, 2017.
As of Mar 31, 2018, Common Equity Tier 1(CET) ratio was 16.4% compared with 14.1% as of Mar 31, 2017.
Risk-weighted assets came in at £202.7 billion ($284.1 billion), down 8.6% year over year.
Outlook
For 2018, a set of targets has been committed by the bank.
Management maintains the CET1 ratio projection at 13%, including certain factors.
By the end of 2018, management expects RWAs to be lower by £5-£10 billion.
Management expects to incur restructuring charges of around £2.5 billion across 2018 to 2019 cumulatively, of which £0.3-billion associates with the completion of the State Aid remedy and reintegration of the former Williams & Glyn (W&G) business into UK PBB.
In the medium term, management retains the target of achieving a sub 50% cost to income ratio and above 12% return on equity by 2020.
Our Viewpoint
We expect RBS’ diversified business model and sound financial position to be conducive to overall growth in the near term. Though heightened competition, volatility in the global economy, litigation costs and new regulations remain plausible concerns, the bank’s ongoing restructuring measures will likely help battle some of these challenges.
Deutsche Bank AG (DB - Free Report) reported net income of €120 million ($147.5 million) in first-quarter 2018, which tanked 79% on a year-over-year basis. Income before income taxes plunged 50.8% year over year to €432 million ($531 million). Lower revenues, mainly due to exchange-rate movements, were an undermining factor. Moreover, expenses escalated in the reported quarter. Notably, net asset outflows were recorded during the quarter. However, reduction in provisions was a positive.
Barclays (BCS - Free Report) incurred first-quarter 2018 net loss attributable to ordinary equity holders of £764 million ($1.06 billion). Net income attributable to ordinary equity holders was £190 million ($248 million) in the prior-year quarter. Results for the reported quarter included £1.4 billion charges related to settlement of residential mortgage-backed securities case with the U.S. Department of Justice and charges of £400 million relating to payment protection insurance.
UBS Group AG (UBS - Free Report) reported first-quarter 2018 net profit attributable to shareholders of CHF 1.5 billion ($1.6 billion), up around 19% from the prior-year quarter. Results displayed rise in net fee and commission income (up 3% year over year) and higher net interest income (up 3% year over year). Nevertheless, the quarter underlined elevated expenses.
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Royal Bank of Scotland (RBS) Q1 Earnings Impress, Stock Down
The Royal Bank of Scotland Group plc reported first-quarter 2018 net income attributable to its shareholders of £792 million ($1.1 billion), significantly up from £259 million ($338 million) witnessed in the prior-year quarter. Operating income totaled £1.2 billion ($1.7 billion), as compared with £713 million ($930.5 million) incurred in the year-ago quarter.
Contraction in operating expenses displayed prudent expense management. Further, non-interest income escalated and risk-weighted assets decreased. However, investors’ concerns regarding lower net interest margin led the company’s shares on the NYSE to depreciate 2.34%, following the release.
Furthermore, division wise, the NatWest Markets segment reported operating profit in the first quarter, as compared with the loss witnessed in the prior-year period. The RBS International, Commercial & Private Banking (CPB) and Personal & Business Banking (PBB) segments recorded profits in both the reported and the prior-year quarter.
Margin Pressure Persists, Cost Control Effective
Net interest income dipped 4.5% on a year-over-year basis to £2.1 billion ($2.9 billion) in the first quarter. Net interest margin contracted 20 basis points to 2.04%, displaying elevated liquidity, competitive pressures on margin and mix impacts across the core businesses.
Non-interest income came in at £1.2 billion ($1.7 billion), up 22.4% year over year. The upsurge primarily reflected own credit adjustments.
Operating expenses totaled £2 billion ($2.8 billion), plunging 20% year over year. Adjusted operating expenses, excluding strategic costs, litigation and conduct costs, were down 2.1% to £1.8 billion ($2.5 billion). Furthermore, cost to income ratio decreased to 60.5% from 76.1% in the prior-year quarter.
Loan impairment losses were £78 million ($108.6 million), as compared with £46 million in the year-earlier quarter.
Strong Capital Position
As of Mar 31, 2018, The Royal Bank of Scotland exhibited a strong capital position. Funded assets came in at £588.7 billion ($825.1 billion), up from £579.2 billion ($726.9 billion) as of Mar 31, 2017. Total assets were £738.5 billion ($1.04 trillion), down from £783.3 billion ($983 billion) as of Mar 31, 2017.
Net loans and advances to customers were £319.1 billion ($447.3 billion), down from £326.7 billion ($410 billion) as of Mar 31, 2017. Loan to deposit ratio was 89% compared with 93% as of Mar 31, 2017.
As of Mar 31, 2018, Common Equity Tier 1(CET) ratio was 16.4% compared with 14.1% as of Mar 31, 2017.
Risk-weighted assets came in at £202.7 billion ($284.1 billion), down 8.6% year over year.
Outlook
For 2018, a set of targets has been committed by the bank.
Management maintains the CET1 ratio projection at 13%, including certain factors.
By the end of 2018, management expects RWAs to be lower by £5-£10 billion.
Management expects to incur restructuring charges of around £2.5 billion across 2018 to 2019 cumulatively, of which £0.3-billion associates with the completion of the State Aid remedy and reintegration of the former Williams & Glyn (W&G) business into UK PBB.
In the medium term, management retains the target of achieving a sub 50% cost to income ratio and above 12% return on equity by 2020.
Our Viewpoint
We expect RBS’ diversified business model and sound financial position to be conducive to overall growth in the near term. Though heightened competition, volatility in the global economy, litigation costs and new regulations remain plausible concerns, the bank’s ongoing restructuring measures will likely help battle some of these challenges.
Royal Bank Scotland PLC (The) Price
Royal Bank Scotland PLC (The) Price | Royal Bank Scotland PLC (The) Quote
RBS currently carries a Zacks Rank #5 (Strong Sell).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Competitive Landscape
Deutsche Bank AG (DB - Free Report) reported net income of €120 million ($147.5 million) in first-quarter 2018, which tanked 79% on a year-over-year basis. Income before income taxes plunged 50.8% year over year to €432 million ($531 million). Lower revenues, mainly due to exchange-rate movements, were an undermining factor. Moreover, expenses escalated in the reported quarter. Notably, net asset outflows were recorded during the quarter. However, reduction in provisions was a positive.
Barclays (BCS - Free Report) incurred first-quarter 2018 net loss attributable to ordinary equity holders of £764 million ($1.06 billion). Net income attributable to ordinary equity holders was £190 million ($248 million) in the prior-year quarter. Results for the reported quarter included £1.4 billion charges related to settlement of residential mortgage-backed securities case with the U.S. Department of Justice and charges of £400 million relating to payment protection insurance.
UBS Group AG (UBS - Free Report) reported first-quarter 2018 net profit attributable to shareholders of CHF 1.5 billion ($1.6 billion), up around 19% from the prior-year quarter. Results displayed rise in net fee and commission income (up 3% year over year) and higher net interest income (up 3% year over year). Nevertheless, the quarter underlined elevated expenses.
The Hottest Tech Mega-Trend of All
Last year, it generated $8 billion in global revenues. By 2020, it's predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.
See Zacks' 3 Best Stocks to Play This Trend >>