Blue-Chip Bargains: Is Now The Time To Buy Royal Bank of Scotland Group plc and Standard Chartered PLC?

Today I am looking at whether banking giants Royal Bank of Scotland (LSE: RBS) (NYSE: RBS.US) and Standard Chartered (LSE: STAN) could be considered bona-fide bargains at current prices.

Royal Bank of Scotland

Much to the chagrin of investors, bombed-out Royal Bank of Scotland has failed to punch a profit since the 2008/2009 banking crisis hollowed out earnings and forced a partial bailout. Still, the high-risk, hulking beast nurtured under the stewardship of former chief executive Fred Goodwin has now been consigned to history, and a much more streamlined and retail-focused business is now in sight.

As a result of this prolonged heavy lifting, Royal Bank of Scotland is expected to punch earnings of 37.3p per share in the current year. But make no mistake: the effect of the firm’s aggressive divestment plan, combined with dragging revenue growth at the core, is still expected to weigh on the business, and a 14% earnings dip next year — to 32p — is currently marked in for 2015.

Consequently, Royal Bank of Scotland currently changes hands on a P/E rating of 10.1 times potential earnings for 2014, but which rises to 11.8 times for 2015. Rather than making the bank a delicious value pick, however, I believe this is a fair reflection of the uphill battle which the company faces to resuscitate growth, not to mention the number of legacy issues it faces in the courts.

On top of this, Royal Bank of Scotland can hardly be considered a red-hot pick for income seekers, either. The business is not expected to get dividends rolling again until next year at the earliest, while a predicted payout of just 1.4p creates a lowly yield of just 0.4%.

And the crippling impact of escalating legal bills, not to mention the firm’s fragile capital position which looks set to be laid bare by next month’s Bank of England stress tests, could put even these modest dividend projections in jeopardy.

Standard Chartered

Emerging market play Standard Chartered has endured a torrid 2014 due to the effect of swirling difficulties in key regions. The stock price has conceded almost a third since the start of the year as the business has followed profit warning with profit warning, in turn casting doubts over the future of chief executive Peter Sands.

Due to the cyclical troubles in Asian markets, Standard Chartered is expected to print a 3% earnings fall in the current year. But I believe that the risks associated with the firm are currently baked into the share price at present, with the firm currently trading on a P/E rating of just 8.9 times prospective earnings, the lowest across the UK banking sector.

And City analysts expect the fightback at Standard Chartered to kick off from 2015, and have pencilled in a 7% earnings advance for next year. This projection pushes the P/E readout still lower to a meagre 8.3 times — any figure below 10 times is generally regarded as terrific value.

On top of this, Standard Chartered can also be considered a medium-term tremendous selection for dividend hunters. Indeed, current payout forecasts produce a dividend yield of 5.6% for this year, smashing a forward average of 3.5% for the complete FTSE 100. And this moves to 5.7% for 2015.

In my opinion Standard Chartered is a terrifically priced way to gain exposure to the lucrative markets of Asia, where low product penetration and rising personable income levels should boost long-term revenue growth at the bank.

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Royston Wild has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.