Investing
BLOG: Why RBS isn’t your best banking investment option
Royal Bank of Scotland’s quarter one results saw the share price jump by more than 10 per cent as revenues and profits for the period came in ahead of expectations.
Despite this positive news, Graham Spooner, investment research analyst at The Share Centre, believes there are better opportunities for investors elsewhere in the banking sector.
He explains why:
“Today’s RBS update delivered the best news investors have received for some time, however there is still a long way to go for the bank and further cost cutting will continue to impact figures.
We believe there are better opportunities from other banks in the sector and prefer Lloyds and HSBC.
Lloyds and RBS were both bailed out by the government in 2008, but Lloyds has played the recovery better. There is no quick fix for the bank, however Lloyds was the best performing FTSE 100 stock in 2012 and was up 55 per cent last year.
In recent updates investors should have spotted some areas of improvement, such as a reduction in bad debts, lower costs and that the bank is running ahead of schedule in achieving its cost base target of £10bn, along with asset sales.
News that the bank will start paying a dividend in the second half of the year and hopes to increase dividends into 2015, with the aim of becoming a significant payer once again is positive for income seekers.
The government’s sale of its holding has started and will hopefully continue in the autumn – this time including the man on the street.
HSBC is in a very different position to the other two banks. It is one of the few in the sector currently paying a dividend and has a progressive dividend policy.
At current levels we consider it to be an attractive option in the sector for income seekers and recommend investors take advantage of any weakness in the share price.
However, its latest results came in slightly below expectations, which raised doubts over the banks targeted return on equity and suggested growth in the medium term is likely to be limited. Investors are advised to build a holding over time by drip feeding in to their portfolio.
HSBC is keen to promote the mix of business and geographical spread, especially the Asian franchise, which it hopes will see it emerge from an environment it describes as “highly uncertain” over the longer term.
Like most banks, HSBC has seen pressure on returns from its assets, while costs have been creeping up – especially in Asia.”
