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 11p to 1639p as ABN Amro downgraded RBS to reduce and sliced nearly 25% off its target to 1500p.

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 and that 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 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 71/2p to 7461/2p, hit by a downbeat assessment from CSFB, which is worried the bank looks undercapitalised under 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 21/2p at 8641/2p while Bradford & Bingley was 23/4p lighter at 3013/4p.

Barclays fell 4p to 5431/2p amid talk that Morgan Stanley is trying to place 12 million shares at 545p.

A good showing by telecoms enabled the market to extend this week's rally with the FTSE 100 up 15.5 points at 4978.2. O2 was the biggest blue-chip climber, up 4p at 1243/4p, followed by Vodafone, 41/4p higher at 145p. …


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