RBS is more than a restructuring story, says Jefferies

Following a meeting with management on Thursday, Jefferies said it is confident that Royal Bank of Scotland will deliver on its restructuring plans and generate excess capital, improving returns as a result.

Jefferies, which rates the stock at ‘buy’ with a 510p price target, said it was clear that chief executive officer Ross McEwan has ambitions to make RBS a world-class bank from an operational perspective.

It noted that after the Greek banks, RBS is the worst year-to-date performer in the European bank sector and said this “makes little sense”.

“We came away with renewed confidence on management's ability to deliver on their guidance for a core cost/income ratio of below 50% - management are clearly not only in control of the cost base but are improving processes to deliver operational efficiencies.”

Jefferies said that capital return is a reality, not a fantasy, and management are studying various conduits for capital repatriation, such as a share repurchase and special dividends.

McEwan was very emphatic about delivering loan growth in the core business and on this point, the bank is already seeing early signs of growth, noted Jefferies.

Jefferies also highlighted the bank’s willingness to deploy excess liquidity. “Without mentioning specifics, it was clear the company will take a look at deploying cash into loan portfolios,” remarked Jefferies.