RBS Raised to Buy at Shore Capital on Economic Growth Potential

Royal Bank of Scotland Group Plc was raised to buy from hold by Gary Greenwood, an analyst at Shore Capital, citing growth in the U.K. economy and a reduced risk of the lender being broken up.

Greenwood also cut his recommendation on London-based HSBC Holdings Plc and Standard Chartered Plc to hold from buy, because the banks that are focused on Asia may find earnings in the region declines, he wrote in a note to clients today.

RBS, the largest government controlled bank in Britain, last month named Ross McEwan, the former head of its U.K. consumer unit as chief executive officer after Stephen Hester stepped down. The government is pushing RBS to focus on U.K. consumer and corporate banking, while it considers a potential break up of the lender to help recoup some of the 45.5 billion pounds ($71 billion) it spent bailing it out five years ago.

“With the U.K., U.S. and Irish economic backdrops now improving, the leadership issue resolved and a risk of an onerous (for minority shareholders) good bank/bad bank split apparently reducing, we think it is time to turn more positive,” Greenwood wrote in the note.

Chancellor of the Exchequer George Osborne said June 19 he’d review whether to break up Edinburgh-based RBS because it’s still burdened by too many poor assets for the government to start cutting its 81 percent stake.

Fitch Ratings said last month a split is unlikely because the costs would outweigh the benefits.

‘Disappointing’ Results

HSBC, Europe’s biggest bank, posted results for the first half of the year that were “disappointing,” Greenwood said.

The bank’s first-half net income rose 22 percent to $10.28 billion after U.S. loan impairments fell, it reported last month. That was less than the $10.57 billion estimate of five analysts surveyed by Bloomberg.

Standard Chartered may “struggle” in the short term because of “negative” news in markets the London-based lender operates in, Shore Capital said.

-- Editor: Jon Menon

Before it's here, it's on the Bloomberg Terminal.