Royal Bank of Scotland has moved to the top of the FTSE 100 risers following an upbeat broker note.
Analyst Joseph Dickerson at Jefferies issued a buy note and raised his price target from 390p to 441p, helping the bank's shares climb 15p to 337.5p. Meanwhile Reuters reported the bank was in talks to sell $800m worth of shipping loans.
Dickerson said:
Received wisdom is that the investment case for RBS has been kicked into the long grass with the creation of the internal bad bank. We disagree. If anything, visibility on returns for the core business increases as does fundamental capacity to pay a dividend from 2015. Up-front loss taking and formal timetable for disposal of bad bank assets crystallizes sum-of-the parts (core and bad bank) valuation.
We value RBS at 441p a share, up from 390p, based on the sum of the good (421p) and bad (20p) banks. The biggest risk to our valuation arises from litigation. Some market participants suggest there is up to £4bn of litigation exposure for RBS. If true, that would equate to 36p a share. RBS faces political risk due to the government's 80% shareholding. There is also execution risk related to the run-off of RBS Capital Resolution.
