A leading Wall Street brokerage is standing by its bullish call on Royal Bank of Scotland Group plc (LON:RBS) even after it failed Bank of England stress tests designed to see whether it could withstand a sharp market downturn.
RBS was a ‘hard’fail’, while Barclays (LON:BARC) and Standard Chartered (LON:STAN) were, according to Goldman Sachs,‘soft fails’.
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RBS and Standard Chartered both feature on Goldman’s ‘buy’ list in the wake of the stress tests, while Lloyds Banking Group plc (LON:LLOY) and Metro Bank (LON:MTRO) were rated ‘sell’.
“In comparison to 2015, this year’s domestic stress was notably harsher, leading to higher losses on UK retail and corporate exposures,” said analyst Martin Leitgeb in a note to clients.
He reckons litigation is the major risk in the year ahead. Leitgeb noted the Bank of England’s model carried £30bn of misconduct charges.
The Goldman number cruncher pointed out that both Barclays and Standard Chartered have taken actions to plug balance sheet gaps that weren’t factored in to the latest stress test.
On RBS he said: “Following the test, it has agreed with the Prudential Regulation Authority further actions to strengthen its capital position: these chiefly consist of incremental cost and RWA (risk-weighted asset) reductions.
“At this stage, it remains unclear to us to what extent these actions are already incorporated in the group’s current restructuring plan.”
Of the 16 analysts logged as following RBS by the Broker Forecasts site, only Goldman is a ‘buyer’ of the stock; 11 are ‘sellers’ while the remainder think the shares are fully valued.
The consensus price target, which was 300p six months ago, has come down to 191p amid worries over the bank’s litigation exposure in the US.
At 9am the shares were changing hands for 195p.