The Motley Fool

Will Royal Bank of Scotland Group plc follow Barclays plc higher in 2017?

Will 2017 be the year when Royal Bank of Scotland Group (LSE: RBS) finally starts to deliver a sustainable, profitable recovery? Since hitting a high of 403p in 2014, the bank’s share price has halved to its current level of 200p.

However, as I’ll explain, I believe there are good reasons to think the outlook for the bank may start to improve in 2017.

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…

And if you click here we’ll show you something that could be key to unlocking 5G’s full potential...

Patience rewarded

An obvious comparison is with Barclays (LSE: BARC). While RBS and Barclays have slightly different business models, both have been slow to escape from problems caused by the financial crisis.

Both banks have faced high levels of misconduct charges. Both banks have problematic portfolios of non-core assets, which must be sold. Both banks have taken longer than expected to deliver promised improvements to shareholders.

However, after a long run of earnings downgrades, analysts have recently upgraded their 2016 profit forecasts for Barclays. The bank’s focus on US-UK banking appears well timed, and the weaker pound has helped to boost profits from US operations.

With a 2017 forecast P/E of 11, Barclays looks attractive to me.

Stress test failure isn’t all bad

Last week’s Bank of England stress test failure must have been embarrassing for RBS management. The group was the only big UK bank required to submit a new plan to the BoE to address its capital shortfall. However, the news may not be as bad as it seems.

One of the bank’s main problems was said to be that it’s expected to face a fine of up to $12bn, relating to mis-selling allegations in the USA. The good thing about this case is that it relates to the bank’s past activities, not to its current operations. It will eventually be settled.

A good bank in hiding?

The other big problem facing RBS is its portfolio of non-core assets, which the group is trying to dispose of. Progress has been steady this year. The total value of these assets has fallen by £10.4bn to £38.6bn so far in 2016.

Supporting this lossmaking division are RBS’s core UK banking operations. These generated an adjusted return on tangible equity of 12% during the first nine months of the year. To put this in context, the equivalent figure for the whole of RBS was -0.6%. It’s clear that if RBS could get rid of some of its problem assets, the bank’s core operations could deliver attractive returns.

Is it really that simple?

One challenge I haven’t mentioned so far is that 72% of RBS shares remain in the hands of the Treasury. The bank is still effectively controlled by the taxpayer.

It’s not yet clear what Chancellor Hammond’s approach will be to selling the government’s shares. But his comments so far suggest he is keen to bring the bailout to an end. I suspect that the government might start selling its stake once RBS has settled its outstanding legal cases.

3 reasons for RBS to rise

Markets hate uncertainty and delays. RBS has delivered both in recent years. But I can see this situation changing in 2017.

If RBS can continue to sell its unwanted assets, settle its legal cases and convince regulators that it doesn’t need to raise any further capital, then investors may start to take an interest.

“This Stock Could Be Like Buying Amazon in 1997”

I'm sure you'll agree that's quite the statement from Motley Fool Co-Founder Tom Gardner.

But since our US analyst team first recommended shares in this unique tech stock back in 2016, the value has soared.

What's more, we firmly believe there's still plenty of upside in its future. In fact, even throughout the current coronavirus crisis, its performance has been beating Wall St expectations.

And right now, we're giving you a chance to discover exactly what has got our analysts all fired up about this niche industry phenomenon, in our FREE special report, A Top US Share From The Motley Fool.

Click here to claim your copy now — and we’ll tell you the name of this Top US Share… free of charge!

Roland Head owns shares of Barclays. The Motley Fool UK has recommended Barclays. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Our 6 'Best Buys Now' Shares

Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply click below to discover how you can take advantage of this.