It doesn’t seem like RBS (LSE: RBS) (NYSE: RBS.US) is out of the news headlines for very long. This time it’s to do with pay, after the bank sought shareholder approval for bonuses of up to 200% of salary for many of its key staff. The government, as the major shareholder, decided to reject the proposed scheme and instead limit them to 100% of salary.
Although the media may get excited about the news on bankers’ pay, for shareholders it makes little difference to how well their investment in RBS performs. But here are three factors that do matter for investors in RBS and which, encouragingly, show that the bank could be poised to deliver strong performance.
A Return To Profitability
After many excruciating years in a loss-making wilderness, RBS is finally forecast to deliver profit in 2014. That in itself is a major achievement and shows that the management team led by Stephen Hester — and now Ross McEwen — has done a great job of not only turning the bank into a profit-making entity, but also in de-risking and shrinking the company’s sprawling balance sheet.
Improving Sentiment
If RBS does succeed in making a profit this year, market sentiment could pick up as it did with sector peer, Lloyds. That’s because RBS, it could be argued, has been on a similar journey to Lloyds, in terms of recapitalising, de-risking the balance sheet and returning to public ownership. However, RBS is clearly behind Lloyds and investors have not yet warmed to the stock.
Interestingly, Lloyds was trading at 30p just two years ago. It now trades at 75p and, although RBS may not be the recipient of such strong investor sentiment in future, it shows that share prices can quickly move if there is a strong enough catalyst behind them.
Strong Growth Prospects
As well as being forecast to return to profitability this year, RBS is also expected to post highly encouraging earnings per share (EPS) growth numbers in 2015. Indeed, EPS is forecast to increase by 12% next year, which is well ahead of the FTSE 100 average of mid-single digit growth.
With a return to profitability expected to occur this year, the potential for improved sentiment and above-average growth prospects, bonus payments to RBS staff are unlikely to matter too much to investors in RBS and could, in fact, be overshadowed by future share price performance.
