Will Royal Bank of Scotland Surprise This Earnings Season? - Analyst Blog


The Royal Bank of Scotland Group plc ( RBS ) is scheduled to report its first-half 2014 results on Friday, Aug 1.

In the preliminary first-half 2014 update issued on Jul 25, this foreign bank reported encouraging earnings for the six months ended Jun 30, 2014. First-half 2014 profit from continuing operations more than doubled from the prior-year comparable period.

Results were driven by lower loan impairment losses and reduced operating expenses. Additionally, the results reflected higher net interest income. However, reduced non-interest income was on the downside.

Repositioning of business fundamentals to withstand any further crisis remains the trend of non-U.S. banks in the quarter, which includes RBS. Defensive actions like limiting expenses are still in place and focus on non-interest income has increased to some extent.

Notably, RBS planned to scale down its interest-rate trading business, which recently lost its competitive edge. Escalation in regulatory as well as operating costs have squeezed the profitability of this unit and forced the banking behemoth to take such a decision.

Further, RBS has been embroiled in several lawsuits and investigations. As a result, the company might have kept additional reserve for litigation expenses, which would dampen the bottom line to some extent.

The Federal Reserve's stricter capital rules for foreign banking organizations (FBOs) sizably operating in the U.S. could cripple their balance sheet further. Anyway, amid several litigation issues and internal inefficiencies, this foreign bank is striving hard through restructuring initiatives that focus on building capital levels to achieve operational efficiency and reduce risk-weighted assets (RWAs).

Management expects first-half 2014 results to reflect impressive operating performance, attributed to favorable credit conditions and robust results from RBS Capital Resolution. Profit before tax is expected to be £2,652 million, up from £1,374 million in the prior-year period, with operating profit of £2,601 million, up from £708 million in the prior-year period.

RBS currently carries a Zacks Rank #1 (Strong Buy).

Other foreign banks that are expected to release results in the coming days include Itau Unibanco Holding S.A. ( ITUB ), Royal Bank of Canada ( RY ) and HSBC Holdings plc ( HSBC ). HSBC will report second-quarter 2014 results on Aug 4 and Itau Unibanco on Aug 5, while Royal Bank of Canada is scheduled to report its third-quarter fiscal 2014 (ended Jul 31) results on Aug 22.

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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 , Business , Earnings , Stocks

Referenced Stocks: RBS , RY , HSBC , ITUB



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