Sir Philip Hampton Swaps Royal Bank Of Scotland Group plc For GlaxoSmithKline plc… Should You?


After months of speculation, it has finally been announced that Royal Bank of Scotland (LSE: RBS) (NYSE: RBS.US) chairman Sir Philip Hampton will step down from his role to take up the same job at GlaxoSmithKline (LSE: GSK) (NYSE: GSK.US).

This is a major loss for RBS, since Sir Philip Hampton has guided the bank through a very dark period in its history and has successfully helped it to be on course to return to profitability in the current year. With GlaxoSmithKline having endured a period of negative sentiment resulting from bribery allegations, is he the man to turn the company’s fortunes around? More importantly, should you and your money follow him from RBS to GlaxoSmithKline?

Huge Potential

Although shares in the two companies have delivered disappointing performances over the last year (RBS is down 2% and GlaxoSmithKline is down 10%), they both have considerable future potential.

In GlaxoSmithKline’s case, this centres around its drugs pipeline. Indeed, while many of its sector peers — notably AstraZeneca — have struggled to come to terms with the loss of exclusivity on key blockbuster drugs, GlaxoSmithKline continues to have a diverse and highly attractive pipeline.

Furthermore, with the sale of the company’s consumer goods businesses, Ribena and Lucozade, GlaxoSmithKline has become a pure play pharmaceutical stock that is intent on focusing all of its resources on the future development of new drugs. This bodes well for the company’s top and bottom lines, as well as for its shareholders.

Meanwhile, RBS has a bright future, too. As mentioned, its bottom line is due to return to being in the black this year, with the bank’s strategy being a major reason for this. Overseen by Sir Philip Hampton and Stephen Hester (followed by current CEO Ross McEwen), RBS has gradually reduced the size of its balance sheet through a number of disposals. This has left the bank leaner, less risky and, in the long run, better positioned to generate increasing profits.

Looking Ahead

Clearly, Sir Philip Hampton has been a key part of the RBS turnaround story. While RBS being on course to post pre-tax profits of £5.2 billion for the full year is perhaps taken for granted today, it has been a superb turnaround from the last five years when the bank lost around £17.8 billion in total. As such, he is likely to prove to be a major asset at GlaxoSmithKline, which bodes well for investors in the stock and undoubtedly makes it a more attractive investment opportunity.

As for whether RBS is now a sell, although there is still more progress to be made, the bank is well on the way to recovery. While market sentiment remains weak, with RBS trading on a price to book ratio of just 0.4, it has a bright future and appears to be well worth buying at current price levels.

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Peter Stephens owns shares of RBS, GlaxoSmithKline and AstraZeneca. The Motley Fool has recommended shares in GlaxoSmithKline.