PA ANALYSIS: How many more skeletons in the bank vaults after RBS stress test fail?

Added 30th November 2016

Just when you thought it was safe to dip your toes back into the murky waters of banking stocks, so comes another stress test.

PA ANALYSIS: How many more skeletons in the bank vaults after RBS stress test fail?

But should today’s news on RBS, Standard Chartered and Barclays stop you investing? 

If the financial crisis let loose a pool of sharks, then subsequent legislative efforts from the Bank of England, the European Banking Authority, and the Fed, were supposed to have defanged the threat, and kept consumers safe.

As ever with this sector, the big question from an investment point of view is whether these efforts have also stemmed financials’ competitiveness and ruined their growth prospects.

However, despite a dip this morning, the impact on RBS’ share price has remained relatively buoyant, suggesting to Brewin Dolphin’s head of research Guy Foster that investors now see these periodic shocks as part and parcel of dealing in the sector.

“There is still litigation hanging over the likes of RBS with certain business model considerations and concerns, however that bank clearly realised it was going to fail and had proposed some measures to address the shortfall,” he said.

"The big question is whether legislation has stemmed financials’ competitiveness and ruined their growth prospects"

“Most of these measures were broadly conducive with its longer-term business strategy anyway, which is why there was a relatively muted reaction from the markets.”

Brewin Dolphin does not favour RBS, though this has more to do with the challenge if faces in reorienting its business model back towards a UK centric bank, and the other potential fines it might be due in the future.

The wealth manager is more positive on Barclays, where Foster believes more attractive valuations adequately discount ongoing business model concerns.

“We also like Lloyds which has a very clear business model and it is still reasonably cheap on a post-Brexit basis; it doesn’t have to do any major surgery to realise its ambitions,” he said.  

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Gary Shepherd

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Gary joined Last Word Media in 2009, becoming editor of Portfolio Adviser a year later. Previously, he worked at Incisive Media with roles across its Professional Adviser, Investment Week, Bloomberg Money and Mortgage Solutions titles. Gary has been shortlisted for various awards, winning Headline Money Investment Writer of the Year in 2010.

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