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Will Royal Bank of Scotland (RBS) Tank Post Q2 Earnings?
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The Royal Bank of Scotland Group plc is scheduled to report second-quarter 2016 results on Friday, Aug 5.
Last quarter, the company reported loss attributable to shareholders of £968 million ($1.4 billion) as compared with a loss of £459 million in the prior-year quarter. Results included payment of the final Dividend Access Share (DAS) dividend of £1,193 million to the U.K. Government.
The backdrop has been tough for global banks since the beginning of the year. Concerns over the Chinese economic slowdown, continued volatility in commodity prices and the prevailing low interest rate environment have taken a huge toll on the industry. The industry wide weakness and global concerns were further fueled by the Brexit referendum which adversely impacted the bank stocks.
RBS’ profitability remains vulnerable to the escalated economic and political uncertainty subsequent to the Brexit vote. However, the second quarter results should not reflect any material impact, as the event occurred at the close of the quarter.
Notably, year to date, RBS has lost more than 44% on the NYSE.
Will the upcoming earnings release put further pressure on RBS stock? It majorly depends on whether the company is able to report improved results this earnings season. RBS, which was bailed out with £45 billion by the British government in 2008, has been striving for growth with several restructuring initiatives including cost reduction measures, reducing geographic footprint and capital build up efforts, while remaining focused on its strategy to become a smaller and simpler bank.
The bank’s ability to cope with broader industry challenges amid its overhauling moves remains a key area to watch this earning season.
Factors to Influence Results
In its second quarter results, RBS expects to record around £50 million charge tied with the Financial Services Compensation Scheme levy and a charge of £66 million relating to debt repurchase.
The Edinburgh-based banking giant has experienced decline in net fees and commissions in the recent quarters, and we do not expect this quarter to show substantial strength. Further, profitability of the bank should suffer given its moderate exposure in the weak industries – oil & gas, metals & mining, shipping.
During the second quarter, global mergers and acquisitions declined substantially as a number of deals were abandoned amid concerns including regulatory and tax risks. Following the broader trend of lower investment banking revenues, RBS, which is already downsizing its investment banking division, is likely to witness a decline as well.
As the bank remains focused on expediting its ongoing overhaul, the quarterly results will be affected by further significant restructuring charges. Also, given RBS’ exposure in numerous lawsuits and investigations, the company might have kept additional reserves for litigation expenses, which could dampen the bottom line to some extent.
However, expense base may get some ease owing to RBS’ continued cost control efforts. Notably, adjusted operating expenses excluding restructuring costs, litigation and conduct costs should remain stable.
Also, the company might have benefited from the ongoing economic recovery (albeit at a slow pace) in the U.K. and Ireland – the major domestic markets. Growth in core U.K. loan business, particularly in the mortgage space, could act as a positive, which should improve the company’s interest income. Notably, during the first-quarter 2016, applications increased 61% year over year, indicating strong pipeline for second quarter as well.
As RBS continues to make investment its core businesses to boost performance, the quarterly results might get support to some extent. The company’s loan book and personal and business banking, and commercial and private banking grew by 15% on an annualized basis in last quarter. The upcoming release should reflect continued growth momentum as the company remains confident of achieving 4% loan growth target for the year.
Furthermore, net interest margin is expected to increase to some extent, reflecting the continued benefit from reductions in the low yielding non-core assets.
Capital efficiency is the key to survival, and most foreign banks are adopting reconstruction-by-asset-sale strategies to strengthen capital ratios. While this will make their business safer, growth prospects remain unimpressive with decreasing sources of income. Notably, RBS is likely to exhibit further reduction in risk weighted assets in the upcoming release.
RBS currently carries a Zacks Rank #4 (Sell).
Other foreign banks that are expected to release results in the coming days include, The Toronto-Dominion Bank (TD - Free Report) , HSBC Holdings plc (HSBC - Free Report) and Canadian Imperial Bank of Commerce (CM - Free Report) . The Toronto-Dominion Bank and Canadian Imperial Bank are expected to report results on Aug 25, while HSBC Holdings will report on Aug 3.
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Will Royal Bank of Scotland (RBS) Tank Post Q2 Earnings?
The Royal Bank of Scotland Group plc is scheduled to report second-quarter 2016 results on Friday, Aug 5.
Last quarter, the company reported loss attributable to shareholders of £968 million ($1.4 billion) as compared with a loss of £459 million in the prior-year quarter. Results included payment of the final Dividend Access Share (DAS) dividend of £1,193 million to the U.K. Government.
The backdrop has been tough for global banks since the beginning of the year. Concerns over the Chinese economic slowdown, continued volatility in commodity prices and the prevailing low interest rate environment have taken a huge toll on the industry. The industry wide weakness and global concerns were further fueled by the Brexit referendum which adversely impacted the bank stocks.
RBS’ profitability remains vulnerable to the escalated economic and political uncertainty subsequent to the Brexit vote. However, the second quarter results should not reflect any material impact, as the event occurred at the close of the quarter.
Notably, year to date, RBS has lost more than 44% on the NYSE.
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Will the upcoming earnings release put further pressure on RBS stock? It majorly depends on whether the company is able to report improved results this earnings season. RBS, which was bailed out with £45 billion by the British government in 2008, has been striving for growth with several restructuring initiatives including cost reduction measures, reducing geographic footprint and capital build up efforts, while remaining focused on its strategy to become a smaller and simpler bank.
The bank’s ability to cope with broader industry challenges amid its overhauling moves remains a key area to watch this earning season.
Factors to Influence Results
In its second quarter results, RBS expects to record around £50 million charge tied with the Financial Services Compensation Scheme levy and a charge of £66 million relating to debt repurchase.
The Edinburgh-based banking giant has experienced decline in net fees and commissions in the recent quarters, and we do not expect this quarter to show substantial strength. Further, profitability of the bank should suffer given its moderate exposure in the weak industries – oil & gas, metals & mining, shipping.
During the second quarter, global mergers and acquisitions declined substantially as a number of deals were abandoned amid concerns including regulatory and tax risks. Following the broader trend of lower investment banking revenues, RBS, which is already downsizing its investment banking division, is likely to witness a decline as well.
As the bank remains focused on expediting its ongoing overhaul, the quarterly results will be affected by further significant restructuring charges. Also, given RBS’ exposure in numerous lawsuits and investigations, the company might have kept additional reserves for litigation expenses, which could dampen the bottom line to some extent.
However, expense base may get some ease owing to RBS’ continued cost control efforts. Notably, adjusted operating expenses excluding restructuring costs, litigation and conduct costs should remain stable.
Also, the company might have benefited from the ongoing economic recovery (albeit at a slow pace) in the U.K. and Ireland – the major domestic markets. Growth in core U.K. loan business, particularly in the mortgage space, could act as a positive, which should improve the company’s interest income. Notably, during the first-quarter 2016, applications increased 61% year over year, indicating strong pipeline for second quarter as well.
As RBS continues to make investment its core businesses to boost performance, the quarterly results might get support to some extent. The company’s loan book and personal and business banking, and commercial and private banking grew by 15% on an annualized basis in last quarter. The upcoming release should reflect continued growth momentum as the company remains confident of achieving 4% loan growth target for the year.
Furthermore, net interest margin is expected to increase to some extent, reflecting the continued benefit from reductions in the low yielding non-core assets.
Capital efficiency is the key to survival, and most foreign banks are adopting reconstruction-by-asset-sale strategies to strengthen capital ratios. While this will make their business safer, growth prospects remain unimpressive with decreasing sources of income. Notably, RBS is likely to exhibit further reduction in risk weighted assets in the upcoming release.
RBS currently carries a Zacks Rank #4 (Sell).
Other foreign banks that are expected to release results in the coming days include, The Toronto-Dominion Bank (TD - Free Report) , HSBC Holdings plc (HSBC - Free Report) and Canadian Imperial Bank of Commerce (CM - Free Report) . The Toronto-Dominion Bank and Canadian Imperial Bank are expected to report results on Aug 25, while HSBC Holdings will report on Aug 3.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>