Broker snap: Expect a 'sharp correction' at RBS after recent rise, says Investec



LONDON (ShareCast) - While an upcoming LIBOR settlement at Royal Bank of Scotland (LSE: RBS.L - news) (RBS) may just be a drop in the ocean compared with last year's PPI redress, Investec (LSE: INVP.L - news) has retained its 'sell' recommendation on the stock.

The broker reckons that regulatory fines for traders' attempted LIBOR manipulation will not be material with RBS expected to be settle at £400m. However, media reports suggest an even lower amount.

"This pales into insignificance when compared with Payment Protection Insurance [PPI] for which RBS has already provided £1.7bn and Lloyds [also rated 'sell'] £5.3bn and counting," said analyst Ian Gordon.

He said that for RBS's fourth quarter, regulatory costs/redress, increased restructuring costs, flat Non-Core losses and an elevated tax charge results in its forecast for an attributable loss of £1.4bn.

Gordon said: "In 2013-15e, we see a return to profit with a modest improvement in core profitability (despite an offset from EC-mandated business disposals).

"However, with a very weak outlook for RoE [return on equity], we remain sellers."

Nevertheless, the broker has raised its target price for the stock from 265p to 290p.

RBS's shares were down 0.74% at 329.94p.