Five Ways Royal Bank of Scotland plc Could Make You Rich

Royal Bank of Scotland Group plc (LON: RBS) is the baddest of the bad UK banks, but it should come good in the end, says Harvey Jones

| 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.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

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.

rbsRoyal Bank of Scotland Group (LSE: RBS) (NYSE: RBS.US) has made the entire nation poorer in recent years.

But one day, it could make you rich.

1. Changing at every level.

RBS chief executive Ross McEwan said earlier this week that RBS needs to change its behaviour “at every level”. Nobody would disagree. This is a company that is accused of deliberately driving its SME customers out of business, to strip their assets (a charge it denies). RBS has just made another £3bn worth of provisions for alleged mis-selling of US mortgage products, PPI and interest rate hedging products. Changing the bank’s culture will take years. It will doubtless squeeze profits in the short term, but should eventually secure a long-term recovery. At the very least, it should cut down on those multi-million pound fines.

2. Cutting out the toxic shocks.

RBS is the ultimate toxic investment, but it has been cleaning up its act. When Stephen Hester was appointed chief executive in November 2008, RBS had £258bn of unwanted businesses and assets. The toxic pool has been drained so that only around £38bn remain. This has put the share price in bad odour, but, eventually, the stink will lift. The best time to buy is before sentiment turns positive, not afterwards. But you might have to patient before people start liking it again.

3. Painfully, doggedly.

With RBS, it is all too often a case of one step forward, two steps back. It seemed to be making progress in raising its core tier 1 capital ratio, which hit 9.1% at the end of September, but it has since slid back to just over 8%, far short of its goal of 12% by the end of 2016. The target date for selling the taxpayers’ 81% stake in the bank is being pushed back further and further. RBS will look even more lonely and exposed once the Lloyds Banking Group re-privatisation is completed, which will possibly be later this year. RBS also has to pour hundreds of millions of pounds into updating its archaic IT systems. In any normal company, this alone would terrify investors. If you want to make money from RBS, prepare for a string of false starts and stumbles along the way. 

4. By giving it time.

While management at Lloyds agitates to restart its dividends, RBS chiefs can only twiddle their thumbs. There is still no dividend, and that’s not going to change any time soon. That said, the dividend will return one day. RBS is forecast to yield 1.6% by December 2015. Earnings per share are forecast to hit 16% in 2015. So maybe next year you’ll start to see some kind of reward. Or perhaps the year after.

5. By treating it as a gamble.

I bought shares in RBS a couple of years ago at 210p. Today they trade at 342p. That’s a gain of 60%, which proves you can make money from RBS, if you time your entry right, and are prepared to be patient. The share price hasn’t moved in a year, so this could be a good moment. In the short term, frankly, anything could happen. In the longer run, however, the stock looks less of a gamble. The bad bank has to come good one day. And when it does, today’s investors will feel wealthier for it.

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.

Harvey Jones owns shares in RBS. He doesn't own any other company mentioned in this article.

More on Investing Articles

Investing Articles

The FTSE 100’s newest member looks like a no-brainer to me!

This Fool explains why she sees the newest member of the FTSE 100 as a great opportunity after its recent…

Read more »

Investing Articles

Empty Stocks and Shares ISA? Here’s how I’d start earning a second income from scratch

Like the thought of earning extra cash tax free? Our writer explains what he'd do to begin earning passive income…

Read more »

Happy young female stock-picker in a cafe
Investing Articles

No savings at 25? I’d start by investing £3k in these 3 red-hot FTSE 100 shares

Harvey Jones thinks these three FTSE 100 stocks would be a great way to kickstart a portfolio of UK shares.…

Read more »

Young Black woman using a debit card at an ATM to withdraw money
Investing Articles

Up 35% from this year’s low! Here’s where I think Lloyds shares are headed in H2 of 2024

My Lloyds shares are already doing well this year but that’s not guaranteed to continue. What factors could turn the…

Read more »

Investing Articles

Approaching £5, is there still growth ahead for the Rolls-Royce share price?

The Rolls-Royce share price has been flying in the last year. But is there more growth ahead or should investors…

Read more »

Happy young plus size woman sitting at kitchen table and watching tv series on tablet computer
Investing Articles

Could Raspberry Pi be a growth share to buy and hold?

Our writer explains why he thinks a newly-listed UK growth share could have a bright future -- and considers whether…

Read more »

A pastel colored growing graph with rising rocket.
Market Movers

The FTSE 100 jumps after the Bank of England meeting. Here’s what’s next

Jon Smith runs over the takeaways from the Bank of England meeting today and flags up which FTSE 100 stocks…

Read more »

Middle-aged white male courier delivering boxes to young black lady
Investing Articles

How I’d start investing in great value UK shares with £10,000 today

Harvey Jones can see a heap of UK shares he'd like to add to an ISA today. Many combine low…

Read more »