RBS Gets First Top Share Rating From Morgan Stanley in 6 Years

Royal Bank of Scotland Group Plc was given a top rating by Morgan Stanley for the first time in six years, as analysts said the bank can beat profit expectations when it emerges from an extensive overhaul.

Britain’s largest taxpayer-owned lender is entering the “final furlong” of its restructuring program and its future earnings power is “under-appreciated,” Chris Manners and Fiona Simpson wrote in a note to clients on Wednesday. They upgraded the stock to overweight from equal-weight.

“RBS has repeatedly disappointed market expectations on earnings,” the analysts said. “Now, as the final layers are peeled away, a slimmed down U.K. and Irish retail and commercial bank with a top-three position in its key markets should start to emerge.”

As Britain moves to privatize the lender, Chief Executive Officer Ross McEwan, 58, is breaking apart RBS’s investment bank, cutting jobs and shedding assets in an effort to reverse seven straight annual losses. The cost of the overhaul and charges for past misconduct have hampered his progress.

RBS is among the worst-performing European banks outside of Greece this year, with its stock tumbling about 19 percent. The stock was little changed at 10:15 a.m. in London trading, as shares of other major U.K. lenders declined.

Chancellor of the Exchequer George Osborne started selling RBS shares at a loss earlier this month as he tries to revive investor appetite in the bank, Britain’s biggest casualty of the 2008 financial crisis.

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