Will Royal Bank of Scotland Group plc Outperform Barclays PLC, Lloyds Banking Group PLC, Standard Chartered PLC And HSBC Holdings plc After Q3 Results?

Royal Bank of Scotland Group plc (LON:RBS) has underperformed Barclays PLC (LON:BARC), Lloyds Banking Group PLC (LON:LLOY), Standard Chartered PLC (LON:STAN) and HSBC Holdings plc (LON:HSBA) in 2016

Royal Bank of Scotland Group plc
Royal Bank of Scotland Group plc

Royal Bank of Scotland Group plc (LON:RBS) has released Q3 results. They show that the bank has made an attributable loss of £469 million compared with a profit of £940 million from the same quarter of last year. However, Q3 2015 included a £1.147 billion gain on loss of control of Citizens and Q3 2016 included a £469 million restructuring cost, £425 million of litigation and conduct costs as well as a £300 million deferred tax asset impairment.

RBS’s income across PBB and CPB was 2% higher than in Q3 2015 and was stable for the year to date as increased lending volumes more than offset reduced margins. CIB adjusted income rose by 71% to £526 million, which is the highest quarterly income for the 2016 financial year. It was driven by Rates, which was aided by sustained customer activity and improving market conditions after the EU vote and central bank policy actions.

Net interest margin of 2.17% was 8 basis points higher than in Q3 2015. The benefit associated with the reduction in lower yielding assets was able to adequately offset modest asset margin pressure and mix impacts across the core of RBS’s operations. RBS’s adjusted cost to income ratio was 66% compared with 67% in the prior year.

In 2016, RBS’s share price has slumped by 35%. This is a worse performance than sector peers Barclays PLC (LON:BARC), Lloyds Banking Group PLC (LON:LLOY), Standard Chartered PLC (LON:STAN) and HSBC Holdings plc (LON:HSBA). Barclays has fallen by 12%, Lloyds is down 21%, HSBC is up 15% and Standard Chartered has gained 24% this year.

In my view, RBS continues to face a difficult short term outlook. It has long term investment appeal, but in my view there may be better options elsewhere within the banking sector.

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