The Motley Fool

Could this looming threat destroy RBS and every other FTSE 100 bank?

Image source: Getty Images.

For the last 12 years, the banks have lurched from one crisis to another. None more so than Royal Bank of Scotland (LSE: RBS), which taxpayers were forced to bail out to the tune of £45bn. There could be more trouble ahead, so watch out.

It’s an absolute scandal

The sector has been rocked by a host of lesser scandals since the financial crisis, including PPI, Libor-fixing, money-laundering and much more. The recovery process has been slow and the losses have continued to mount. Last year, chairman Sir Howard Davies said RBS had lost £130bn over the decade after it was rescued.

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...

These are huge, especially when set against its market-cap of £29bn. Loyal investors have also suffered, with the RBS share price a third lower than it was five years ago. At least it now pays a dividend, currently yielding 2.3%, with the promise of more to come. So would I invest in it now?

Many will be tempted by the 16% jump in its share price over the last month, as investors celebrated the final deadline on PPI claims and the appointment of new CEO Alison Rose. And a potential Brexit resolution.

That’s a massive yield

Short-term forecasts are good, with City analysts anticipating a 90% leap in earnings this year, which could lift the yield to 10.4%. That’s forecast to fall to 5.7% in 2020, but still more than respectable. The bank looks cheap too, trading at just 9.5 times forward earnings, with a price-to-book ratio of just 0.6 (where 1 = fair value).

Before you part with your money, a word of warning. Banks like RBS are on the frontline when the global economy slows. Their personal and business borrowers are more likely to default, while continued low interest rates squeeze net lending margins.

There is a longer-term worry. I’ve just read a report by Vincent Vinatier, manager of the AXA WF Framlington Fintech Fund, who’s warning that global banks must spend hundreds of billions on IT systems to compete in the digital world.

Deadly disruption

Globally, they must lavish a “mind-boggling” sum of nearly $300bn by 2021, and the costs will continue to rack up as they fight off the challenge from online and app-based start-ups.

Vinatier warns that too many established banks have clunky systems, and that upgrading them is complex and costs typically overrun. The big banks also have to fund “a move to the cloud and constant investment in cyber-security.”

He wasn’t specifically talking about RBS, but it will be hard for such a major player to compete against nimble new fintech operations, which customers can quickly download onto their phones to see how they’re getting along. For now, they’ve focused on services such as savings rates and currency transfers, but that’s steadily broadening.

Warren Buffett favours stocks with wide and sustainable “economic moats,” protecting them from competition, and the banks have long been protected by their scale, and customer inertia. As the digital disruptors put the retail banking model under siege, that moat is slowly evaporating. You have been warned.

“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!

Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Where to invest £1,000 right now

Renowned stock-picker Mark Rogers and his select team of expert analysts at The Motley Fool UK have just revealed 6 "Best Buy" shares that they believe UK investors should consider buying NOW.

So if you’re looking for more top stock ideas to try and best position your portfolio in this market, then I have some good news for your today -- 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 enter your email address below to discover how you can take advantage of this.