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RBS: could it fall into foreign ownership?

Terry smiling headBanks are back in the black and slowly regaining the public’s trust. What happens next? A new owner for Royal Bank of Scotland?

After reporting a first quarterly profit since 2015 RBS CEO Ross McEwan is expected to deliver on his promise of a return to full-year profit.

Of course, the legacy issues (a euphemism for the whopping fines and compensation payments) remain a burden on the bottom line. The bank is also hit by £577m of restructuring costs, half of it for property disposals.

None of this, however, seems to be holding back the bank’s investment and development and as it combines this drive on growth with a cleansing of the balance sheet it must start to attract the attention of predators.

Today Mr McEwan talked up new products. The bank’s customer retention remains high. Customer deposits increased by £9.4 billion, or 6.9%, to £146.3bn compared with Q1 2016.

Dig deeper into the figures and there are other positives: Net interest margin increased by 7 basis points to 3.01% compared with Q4 2016 and new mortgage lending of £7.8 billion was 10% higher.

It’s long been my view that RBS will eventually end up in foreign hands. The Chancellor has talked of selling the taxpayers’ stake at a loss, if only to get it off the Treasury’s books.

That doesn’t mean the bank will be a bargain buy. It’s priced according to the market’s value. But as it strips out those legacy issues and rebuilds its core bank it does become a more attractive proposition.

Who would buy? The US banks were my tip a few years back, but the Chinese and even the Middle Eastern funds now look more likely.

Will it happen? Much would depend on the government putting up some sort of deal to take care of the litigation costs. That would leave a potential buyer with a cleaned up bank back in profit. What’s not to like about that?

 

 

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