Investors Wary of RBS as It Eyes Worldwide Expansion; Market Report
Byline: SARAH MARKS
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 15p to 1635p 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 RBS is likely to invest substantial amount in Europe and Asia to broaden the geographic source of its revenues.
It argues that with senior management compensation 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 steeply contracting mortgage market took their toll on the High Street lenders.
Northern Rock fell 4p to 750p, 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. Bradford & Bingley was 1p lighter at 3031/2p while Lloyds TSB eased 1/2p to 4641/2p.
The FTSE 100 index was up 4.4 points at 4967.1, cheered by another robust performance on Wall Street where investors renewed their appetite for US equities.
The Dow closed 28.7 points higher at 10,493.20. Tokyo's Nikkei Average finished 39.87 points lower at 11,037. …