Jefferies sees good progress on rebuilding capital at RBS

LONDON (ShareCast) - Revenues at RBS (LSE: RBS.L - news) weakened over the first three months of the year as £856m in litigation and conduct charges left a gaping hole in the bank's bottom line. Instead of the £306m in statutory profits expected by analysts the lender registered a loss of £446m, as conduct and litigation had been expected to be lower at around £223m.

However, analysts at Jefferies emphasised that the critical metric for them was the core equity Tier 1 (CET1) ratio, which improved by 30 basis points to reach 11.5%, analyst Joseph Dickerson pointed out.

"Overall, results are trending in-line with our thesis and we await the full disposal of Citizens Financial Group to see a capital ratio > 13%." On a pro-forma basis Jefferies sees RBS's capital ratio exceeding 14%. RBS recovered £91m of impairments in the first quarter, led by a write-back of £109m at its so-called 'bad-bank'. Only a £2m net recovery had been expected.

Performance on the cost side was 6% better than anticipated at £2.8bn and RBS is set to take £800m of costs out despite the higher bank levy.

At £453m restructuring costs were also less than the £789m which had been forecast.

Risk weighted assets (RWA) at the group's run-off businesses were lower by £9.1bn and RBS remains on track to reduce RWA to below £300bn this year, the broker added. Jefferies reiterated its 'buy' recommendation and 510p target.

As of 08:49 shares in RBS were down by 2.63% to 340.3p.