Today sees another major UK bank being fined by a regulator, with RBS (LSE: RBS) (NYSE: RBS.US) being forced to hand over £42 million to the FCA and a further £14 million to the PRA. The fine is due to an IT breakdown in June 2012 which saw the bank’s customers (around 6.5 million people) unable to access their accounts and make or receive payments.
At the time, it was major news and led to wages not being paid by companies, interest not being correctly accrued or debited, while salaries were not received by individuals, either. In short, it was chaos for around 10% of the UK’s population.
The disruption lasted for around a week and resulted from a failed update to the bank’s IT systems. The FCA and PRA decided that RBS had failed to properly keep its IT systems up to date and that there had been numerous failures at all levels across the bank.
More Fines
The fine comes less than two weeks after RBS was fined around £390 million for foreign currency manipulation, and is yet another blow to the UK banking sector. Indeed, sector peers HSBC (LSE: HSBA) (NYSE: HSBC.US) and Standard Chartered (LSE: STAN) have also been the subject of major fines this year, with the former being forced to cough up around £380 million for foreign currency manipulation and Standard Chartered paying around £180 million in August for lapses in its anti-money laundering systems.
Future Potential
Clearly, fines for any bank are bad news and can hit sentiment in the short run. However, the market seems to be pricing in such problems, with, for example, the share price of RBS being flat today even after the fine has been announced. As a result, further bad news in this regard seems to be anticipated by investors, thereby meaning that they have far less impact upon share prices than would normally be the case.
Looking Ahead
Despite their fines, all three banks are expected to post healthy bottom lines in the current year. In the case of RBS, 2014 is set to be its first year of profitability since the start of the credit crunch, while HSBC and Standard Chartered are forecast to grow their bottom lines by 6% and 7% respectively in 2015 even though a slowdown in China is holding back the Asian economy at the present time.
With shares in RBS, HSBC and Standard Chartered all trading on relatively low valuations and having the potential to grow their bottom lines in 2015 and beyond, they could prove to be strong buys. For example, while the FTSE 100 has a price to earnings (P/E) ratio of 15.4, RBS has a P/E ratio of just 10.3 and HSBC and Standard Chartered’s P/E ratios are also appealing at 11.4 and 8.7 respectively. This shows that there is considerable scope for upward reratings, with such low ratings indicating that further bad news is priced in.
Certainly, there could be more fines to come. However, with such low share prices and bottom lines that are on the up, there seems to be very generous margins of safety built into the share prices of RBS, HSBC and Standard Chartered. As a result, all three banks could be well worth buying at the present time and could boost your portfolio returns in 2015 and beyond.
