According to data released by the Financial Services Authority
The Royal Bank of Scotland (
) received 53,806 customer complaints in the second half of
2010. This includes customers of its banking, insurance and
investment businesses. Notably, Barclays (
) - one of RBS's biggest rival in the UK banking industry -
recorded 276,315 complaints for the same period; almost 5 times the
figure for RBS. Beyond Barclays, RBS also competes with other
worldwide banking institutions and financial services group
like Citigroup (
), Bank of America (
), UBS (
Our price estimate for RBS stock stands at
, in line with market price.
But Don't Customers Complain All the Time?
The FSA data shows that a total of 1,795,182 financial
sector-related complaints were received from July to December 2010.
That is an average of almost 10,000 complaints per day. While
complaints certainly vary in degree, the rate is noteworthy
nonetheless. On top of that, the FSA obtains information about
the number of complaints from the firms itself. So the level of
transparency that the firm decides to provide in its disclosure
likely has an affect on the accuracy of this data.
RBS was Recently Cited for Poor Customer Complaint
In January this year, RBS's UK retail banking division and its
subsidiary, NatWest, was fined £2.8 million ($4.5 million) by the
FSA for lax treatment of customer complaints. The fine was imposed
when FSA concluded that RBS delayed responding to customer
complaints and did not mount adequate investigations to address the
Does this Really Matter?
Poor customer service can dent a firm's brand, driving new
customers (and also dissatisfied existing customers) towards
competitors. Tying this back to RBS, the effect could emerge in
growth prospects for the company's UK retail banking division.
We estimate that the value of RBS' credit card, mortgage, and
other outstanding loans in the UK will grow by about 5% annually
over the coming years, driven by an expanding customer base.
However, should customer concerns mount, this could be one area
that might see an impact.
While we do not believe that the FSA data poses any material
threat to our base case estimates, we offer the following scenario
to illustrate the sensitivity of RBS' stock value to consumer loans
outstanding. Should this annual total remain flat at around $160
billion going forward (vs. our base case forecast of 5% annual
growth), it would imply 6% downside to our $13.43 price estimate
for RBS stock.
Let us know your thoughts. Do customer complaints matter for
a bank's outlook?
See our full analysis and $13.43 price estimate for