RBS (LSE:RBS) share price was up this morning by 9.00p from yesterday’s close of 204.50. Whilst 213.50 is not the bank’s highest mark for the year, neither is it its lowest. The increase follows the bank’s report of its half year results.
Not All Bad News Is Bad News
When an interim report is so lengthy that it has to be released in eight parts, it doesn’t give pundits much time to analyse thoroughly enough and still meet deadlines, so headlines this morning ranged the gamut, reporting either dire results or favourable. It’s been sort of like reading a war correspondent’s stories. Some are seeing a portion of a battle up close on one front, while others are seeing something entirely different. Given the market response this morning, investors at large have been able to see the bigger, overall picture that RBS “General” Stephen Hester is trying to show.
Some Battles Are Lost in Every War
Sure it sounds bad when you report that you lost £1.5 billion, or when you tell folks that a computer glitch that froze customer accounts blew up in your face to the tune of £125 million. It still doesn’t sound good when you say that you expect to be hit by another £185 million in compensation for “miss-sold” products to retail and commercial customers. A body count loss of 5,700 during the period, when reported on its own, can also be misleading.
Whilst the foregoing snippets are true in and of themselves, the overall story is that, when seen as a whole, RBS is winning the war. For instance, customer deposits were up by £7 billion. Retail lending was up by 2%, with lending to first time buyers up 26%. Commercial lending was up 4%. The bank has repaid the entire amount loaned to it to bail it out of the 2008-2009 banking crisis. This loan repayment, of course, figures into the overall net loss. The bank is on track to complete the IPO of its Direct Line insurance division this year. RBS reduced its exposure to the eurozone by 8% to £218 billion. Bad debt charges decreased by 40% to £2.6 billion. The loss of employees reduced staff costs by 4%. Total operating profit was £1.8 billion. And Mr. Hester has voluntarily foregone his annual bonus.
The General Assessment
CEO Hester said that “We launched our plan to change RBS in 2009 and it continues to deliver good progress along the path we set out. We are in a chastening period for the banking industry. The consequences of the sector’s past over-expansion are still being accounted for, probably with some way still to go. The mistakes and vulnerabilities carried over from that period are both financial and cultural. It’s no comfort that many of these actions are shared across the industry. These issues together are hard to deal with, but just as necessary a part of change from the past as the restructuring of our balance sheet.”
Analysts at Nomura saw the overall strategy and status, saying that “We see this set of numbers as in line with expectations. This may generate some amount of relief in the stock.”
As long as the struggle to gain ground continues, there will be battles along the way. RBS may win some and may lose some, as it has been doing. So far, however, the overall strategy seems to be well-advised and the bank has demonstrated its ability to keep forging ahead, gaining ground to secure its goal.
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