Investors Wary of RBS as It Eyes Worldwide Expansion; Market Report

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PUNTERS were baling out of Royal Bank of Scotland today after a leading broker warned that its focus on global expansion is putting profits at risk.

The shares slid 17p to 1633p as ABN Amro downgraded RBS to reduce and sliced nearly 25% off its target price to 1500p, almost 10% below the current level.

The broker says the bank is likely to invest substantial amounts in Europe and Asia to broaden the geographic source of its revenues. It argues that with senior management pay based on earnings per share rather than return on capital, profitability will be sacrificed.

It predicts profitability will erode more quickly from this year onward and a sale of the Citizens business would be the best step forward to crystallise value.

There was precious little cheer for the rest of the banking sector as dire warnings on falling consumer spending and a sharply contracting mortgage market took their toll on the High Street lenders.

Northern Rock fell 61/2p to 7471/2p, hit by a downbeat assessment from CSFB, which is worried that the bank looks undercapitalised under the new IFRS accounting rules. The broker warns that a 22% rise in costs will hit first-half results. Its calculations suggest earnings per share will be 69.6p - below the bank's own expectation of 72p. Alliance & Leicester was down 31/2p at 863p while Bradford & Bingley was 11/2p lighter at 303p.

Barclays fell 41/2p to 543p amid talk that Morgan Stanley is trying to place 12 million shares at 545p.

A good showing by the telecoms sector enabled the market to extend this week's rally with the FTSE 100 up 8.7 points at 4971.4, cheered by another robust performance on Wall Street where investors renewed their appetite for US equities. …


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