HSBC reckons there are a few issues on the horizon for Royal Bank of Scotland Group PLC (LON:RBS) but it has upgraded the lender to ‘hold’ because of the “lacklustre” share performance recently.
Analysts at HSBC think RBS’s settlement with the US Department of Justice – which it hopes to reach later this year – could cost the bank between £3.85bn (US$5bn) and £4.6bn (US$6bn) more than current estimates.
READ: RBS shares rise after return to half-year profit but conduct issues continue to weigh
UK politics a key issue
Aside from that, there are also political risks in the UK which could have a negative impact on performance in the not too distant future.
“We are not just concerned about Brexit here,” said analyst Robin Down.
“The recent UK election results mean the possibility of another early election cannot be ruled out, with a chance for the Labour party to gain further momentum.
“Given the latter’s previous manifesto pledge to explore ways of breaking up RBS, we believe investors need to keep this risk firmly in mind.”
Generally doing ok though
Despite those issues, which Down concedes are largely outside of management’s control, the analyst believes RBS has “come a long, long way in recent years”.
He highlights the cost base which is on track to finish the year at below £7.7bn, down from £9.4bn in 2015.
Then there’s the balance sheet which Down said has “shrunk dramatically”, while pointing out that loan growth is better than its peers.
“With the passage of time and higher forecasts (increased on lower cost of risk and expenses) we raise our target price to 250p from 210p, sufficient, given the lacklustre performance of the stock, to raise our rating to ‘hold’ from ‘reduce’.”
That price target is still below where the shares currently are though. The stock is down 0.9% in early afternoon deals to 256p.