Will Royal Bank Of Scotland (RBS) Rally Post Q1 Earnings?
Zacks Investment Research | Apr 26, 2017 10:28PM ET
The Royal Bank of Scotland Group (LON:RBS) plc (TO:RBS) is scheduled to report first-quarter 2017 results on Apr 28.
The company reported operating loss in the fourth quarter. Results were affected by elevated litigation and conduct charges, along with restructuring costs.
Despite the disappointing results, RBS’ shares jumped nearly 10% on the NYSE for the three-month period ended Mar 31, 2017. The increase was largely driven by gradual improvement in the macroeconomic backdrop and a positive implication of the bank’s restructuring activities.
RBS, which was bailed out with £45 billion by the British government in 2008, has been striving for growth with several restructuring initiatives. These include cost-reduction measures, reducing geographic footprint and capital build-up efforts, while remaining focused on its strategy to become a smaller and simpler bank.
The bank’s ability to cope with broader industry challenges amid its overhauling moves remains a key area to watch this earning season. So, will the upcoming earnings release lead to further improvement in RBS’ share price? Let’s check out the factors that are likely to impact the results.
Factors to Impact Q1 Results
The Edinburgh-based banking giant experienced decline in net fees and commissions in the recent quarters and we do not expect this quarter to display substantial strength. The company has downsized its investment banking division, which is likely to witness a decline. However, the company’s revenues from advisory should record significant improvement, as M&A activities were strong during the quarter.
As the bank remains focused on expediting its ongoing overhaul, the quarterly results will be affected by further significant restructuring charges. Also, given RBS’ exposure to numerous lawsuits and investigations, the company might have kept additional reserves for litigation expenses, which could dampen the bottom line to some extent.
However, expense base may get some respite owing to RBS’ continued cost-control efforts. In addition, the company might have benefited from the ongoing economic recovery (albeit at a slow pace) in the UK and Ireland – the major domestic markets. Growth in core UK loan business, particularly in the mortgage space, could act as a positive and improve the company’s interest income.
Moreover, net interest margin is expected to increase partially, reflecting the consistent benefit from reductions in the low yielding non-core assets.
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