RBS may make direct purchase of government shares, Jefferies says
Royal Bank of Scotland could be planning a direct purchase of part of the government's stake after disappointing investors with the dividend announced at the bank's annual results, Jefferies analysts said.
Jefferies, which has a 'buy' rating on RBS, said RBS's fourth-quarter results beat forecasts as revenue and bad debts were better than expected but costs missed their target.
RBS, which is changing its name to NatWest under new boss Alison Rose, reported annual operating profit of £4.23bn, up from £3.3bn and better than a forecast of £3.8bn.
The final ordinary dividend of 3p a share was 1.4p short of expectations, Jefferies said, and the 5p special dividend was in line with consensus but well below Jefferies' forecast of 13p.
The analysts, led by Joseph Dickerson, said the underwhelming dividend suggested RBS was preparing to buy back some of the government's 62% stake, held since the banking bailout of 2008. The bank has said it would consider a "directed buyback" of taxpayers' holding to purchase extra shares alongside government sales.
"We believe investors will be disappointed with capital return in Q4," Dickerson wrote in a note to clients. "On the other hand, the lower dividend per share may portend greater buybacks in the near-term … Perhaps this suggests management teeing up a directed buyback after the 11 March budget?"
The date for the government's first budget has been thrown into doubt after the resignation of Chancellor Sajid Javid on 13 February and his replacement by Rishi Sunak. Chancellors have used their budgets to set out plans for returning RBS to the private sector.
Dickerson said plans to reduce RBS's investment banking risk-weighted assets from £38bn to £20bn in the medium term would free £3bn of common equity in 2020 for a cost of £600m.