Will Neil Woodford Buy Royal Bank Of Scotland Group plc?

Does top City investor – and long-time banks bear – Neil Woodford now have Royal Bank Of Scotland Group plc (LON:RBS) in his sights?

| 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.

Back in July, ace City investor Neil Woodford, who famously sold out of banks before the financial crisis, categorically denied claims by the Daily Mail that he was eyeing up an investment in Lloyds Banking, saying:

“I have absolutely no intention of buying a stake in Lloyds or any other UK-focused high street bank at the present time and don’t expect to do so for some time”.

Royal Bank of Scotland (LSE: RBS) (NYSE: RBS.US), the 81%-taxpayer-owned bank, certainly falls under Woodford’s description.

Woodford’s concerns about these banks centred on the risk of future capital raisings and the extent of further impairments of assets. His view was that the process of loss recognition for bad loans “still has several years to run”.

Woodford’s pessimism contrasted with the optimism at the time coming from both the bank and government. RBS’s chairman, Sir Philip Hampton, had recently said the company’s recovery would be “substantially complete” by the middle of 2014. Prime Minister David Cameron had spoken of selling the taxpayers’ stake “as soon as possible”; and it was widely believed that both the prime minister and Chancellor George Osborne would like to have the whole business done and dusted before a 2015 general election.

Was Woodford wrong to be so pessimistic? And might the newsflow over the months since have led him to change his view on RBS? The short answer on both counts is: “No”.

On 10 August — less than a month after Woodford delivered his withering words, and a week after RBS released its half-year results — Business Secretary Vince Cable said in an interview with the Sunday Telegraph:

“I think it is pretty unrealistic to think of RBS going back into private ownership this Parliament or probably within five years”.

Jumping to the bank’s third-quarter results announcement on 1 November, George Osborne was downbeat on the prospects of a sale in the foreseeable future: “I think, sadly, it is still some way off,” he told BBC Radio 4’s Today programme. “I think, quite frankly, it is unlikely before the general election”.

RBS told us within a Q3 statement that it is creating an internal ‘bad bank’ of high-risk assets, which will result in increased impairments in Q4 and a “substantial loss” for the full year. Management also told us that “in light of a changing regulatory landscape and other capital headwinds” it would be targeting a capital buffer ratio 3% higher than the current 9% level by the end of 2016.

Unwinding impairments and capital headwinds are precisely the things that concerned Woodford back in July, and I have to say that RBS looks the least-likely FTSE 100 bank through which he might make a return to the long-shunned sector.

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.

> G A Chester does not own any shares mentioned in this article.

More on Investing Articles

Investing Articles

Could the JD Sports Fashion share price double in the next five years?

The JD Sports Fashion share price has nearly halved in the past five years. Our writer thinks a proven business…

Read more »

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

If interest rate cuts are coming, I think these UK growth stocks could soar!

Falling interest could be great news for UK growth stocks, especially those that have been under the cosh recently. Paul…

Read more »

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »