If you’re thinking of buying shares in the Royal Bank of Scotland (LSE: RBS), I think there are some things you should seriously consider. Shares in the bank have plummeted 54% so far this year which doesn’t compare well with the FTSE 100‘s relatively small 22% nosedive. But, on its own, this is not necessarily a show stopper.
Indeed, as any Fool knows, a sound investment is more than just buying a stock at a lower price. It’s the result of sound research into a company’s situation and outlook. Which is why it’s worth highlighting three areas of interest to those thinking of buying RBS stock.
RBS is rebranding to NatWest Group
RBS is changing its name to NatWest Group to mark the “start of a new era” for the bank. Understandably, RBS is keen to move on from its association with the 2008 financial crisis and its £45b state bailout. Supposedly, the name change will not alter services for current customers.
However, its loss-making investment banking division, NatWest Markets, is being restructured and streamlined to try and improve profitability. But with foreign exchange gains in 2019 putting more into the bank’s coffers than any other single RBS banking division, I think there’s scope for more to be done elsewhere too.
62% Royal Bank of Scotland Shares owned by government
That £45b state bailout bought the UK government 82% of the shares of the Royal Bank of Scotland in 2008. Over time, the government has sold part of its holdings and public ownership now accounts for around 62%. It was thought that the government would try to sell its stake by 2023–24. However, the Chancellor has confirmed that the bank will retain its share for at least another year to focus on the coronavirus response.
The problem with this is twofold. Firstly, there is the downward pressure it may have on the RBS share price. The government will sell at some point, the question is when. And secondly, it still leaves the bank subject to direct political interference it may not need or benefit from.
IT risk factors
In the 2019 half-year results, RBS highlighted information technology as a hazard that could impact its operations. Moreover, banks more generally are frustrated by IT failures and cyber-attacks because their networks are hard to protect. However, RBS in particular has a history of security breaches.
More and more of us are banking online, whether for business or personal reasons. Unless RBS manages to improve its cybersecurity, it may start pushing customers towards its more digitally-savvy, lower-cost competitors, reducing revenues.
Royal Bank of Scotland shares are currently trading around 110p. The bank has a tangible net asset value of around 309p and some analysts gave RBS a fair value of 272p back in January. I expect it’s dropped a bit since but it still offers a lot of bank for your money.
However, until the government sells its stake and RBS begins to become more competitive with its peers, I think there are better banks for your money.
