Tar Sands Financing Could Become a Sticky Issue for RBS

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The Royal Bank of Scotland ( RBS ) Group ( RBS ) faced strong protests from representatives of some of Canada's First Nations for financing the disputed tar sands industry in Canada. The native tribespeople got an opportunity to voice their opposition at the company's AGM where they questioned the RBS board about the bank's involvement in financing the controversial projects to extract oil from tar sands in provinces such as Alberta. RBS has given out £5.6 billion ($9.2 billion) for tar sands schemes over the last 2 years with nearly £2 billion ($3.3 billion) being raised over the last 12 months. The RBS Group competes with other worldwide banking institutions and financial services group like Citigroup ( C ), Barclays ( BCS ), Bank of America ( BAC ), UBS ( UBS ) and JPMorgan Chase (JPM).

Our price estimate for RBS stock stands at $13.43 , roughly in line with market price.

The Tar Sands Projects Have Been Controversial…

First Nations communities have been strongly opposing the tar sands extraction projects on their tribal lands in Alberta, which is spread over an area larger than England. They are also resisting the implementation of the 1,170 kilometer long Enbridge Northern Gateway pipeline from Alberta to the British Columbian coast which is proposed to pass through 80 First Nations territories.

Deforestation, open pit mines and toxic tailings ponds have contaminated the local ecosystem in the area and have affected the way of life for the inhabitants. First Nations communities have also reported a significantly higher level of diseases, including cancer, since the project got underway. On a larger scale, environmental groups claim that the project would accelerate global climate change.

RBS has been involved with Enbridge, BP, Kinder Morgan, Total and Marathon to raise £5.6 billion ($9.2 billion) in corporate financing for tar sands schemes. The Yinka Dene Alliance, a group of five First Nations that would be directly affected by the Enbridge Northern Gateway Pipeline, have already issued warnings to 3 other banks involved in financing the project.

Although the company's UK Business Banking division has nearly $159 billion in loans outstanding, the doubt raised over this $9.2 billion financing can potentially hit RBS hard, as it could come with significant legal (and environmental) risk.

While the board did listen to protesters during the AGM, how they respond to their concerns remains to be seen.

See our full analysis and $13.43 price estimate for RBS



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Investing Ideas , Stocks , US Markets

Referenced Stocks: BAC , BCS , C , RBS , UBS

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