Politics Doesn’t Put Me Off Royal Bank Of Scotland Group plc

Although MPs are putting the bank under pressure, I’m still a buyer of Royal Bank Of Scotland Group plc (LON: RBS).

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

It always fascinates me how politicians seem to jump on bandwagons.

Indeed, the Parliamentary Commission on Banking Standards recently commented that it is “important for all the options for RBS‘s (LSE: RBS) (NYSE: RBS.US) future structure to be examined as a matter of urgency”.

This seems to indicate that the Commission is seeking a break-up of RBS between a ‘good’ RBS and a ‘bad’ RBS so as to create two different entities. This idea is backed by a whole host of MPs, former Bank of England Governor, Lord King, and former Chancellor, Lord Lawson. Indeed, it seems to be a bandwagon worth jumping on, so it would be of little surprise to see other MPs follow suit and tie their respective flags to this particular mast.

Of course, the debate surrounding whether RBS should be split up or not is, for me, something of a red herring. This is because RBS is already well into the process of splitting itself into a ‘good’ and a ‘bad’ bank; however, it is just not labelling itself as such.

The two areas are, according to RBS, core and non-core, with the core part of the bank representing the bits it wants to keep as part of what it hopes will be a thriving RBS. The non-core assets, meanwhile, are those that it either wants to sell because they require too much capital for too little return, or else it is being forced to sell them (as in the case of the sale of English branches).

So, the debate in Westminster Village is, in my view, rather disingenuous to Stephen Hester, RBS’s current CEO, because he has worked hard to create a ‘good’ bank and dispose of the bits that arguably made RBS a ‘bad’ bank.

This strategy is starting to show signs of real progress, with RBS forecast to record earnings per share of around 30p in 2014. This puts shares on a forward price-to-earnings (P/E) ratio of just 10, which compares very favourably to the FTSE 100 on 14.8 and to the wider banking sector on 16.1.

Furthermore, although only a small proportion of such earnings are forecast to be paid out as dividends and I believe this is a prudent position for the bank to adopt. Using the capital to further shore up the balance sheet seems to be more sensible than returning cash to shareholders, at least until RBS becomes a ‘really good’ bank.

Of course, you may be looking for yield opportunities today. If you are, I recommend you view this exclusive report entitles The Motley Fool’s Top Income Share.

It is completely free and without obligation to view the report and may just provide your portfolio with the dividend boost it needs when inflation remains a concern and bank saving rates are relatively low.

Click here to take a look.

> Peter owns shares in RBS.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

More on Investing Articles

Young woman working at modern office. Technical price graph and indicator, red and green candlestick chart and stock trading computer screen background.
Investing Articles

Are Anglo American shares like buying £1 coins for 50p?

Jon Smith takes a look at the falling price of Anglo American shares and asks whether they're chronically undervalued or…

Read more »

Close-up of British bank notes
Investing Articles

I’d buy 1,064 shares of this dividend growth stock for £1,000 a year in passive income

Shares in FTSE 100 conglomerate Bunzl come with a 2% yield at today’s prices. But Stephen Wright thinks this is…

Read more »

Growth Shares

Under 50? Here are 3 monster growth stocks to consider for 2024 and beyond

These US-listed growth stocks could deliver blockbuster gains for long-term investors in the years ahead, says Edward Sheldon.

Read more »

Investing Articles

Here’s how much I’d need to invest in Tesco shares for £100 in monthly passive income

Our writer does not own shares of this supermarket for passive income, but how many would he need to buy…

Read more »

Snowing on Jubilee Gardens in London at dusk
Investing Articles

Could £200 of Christmas money be used to start buying shares this month?

Our writer reckons if he was a stock market novice, he could put some Christmas money to work and start…

Read more »

Close-up of British bank notes
Investing Articles

Here’s how I’d aim to build a £250 monthly second income in 2024 – and far beyond!

Our writer thinks buying carefully-chosen dividend shares could help him build a second income over the long term. Here's his…

Read more »

Investing Articles

If I’d put £10k into a FTSE 250 tracker 10 years ago, here’s what I’d have now

UK investors love FTSE 250 tracker funds. But have these products been a good investment over the long term? Edward…

Read more »

Risk reward ratio / risk management concept
Investing Articles

I’d use a Stocks and Shares ISA to invest in low-risk equities and let the passive income roll in

Stephen Wright thinks a Stocks and Shares ISA can be a valuable way of generating tax-efficient passive income even for…

Read more »