Investec's Ian Gordon writes that "the share price (once again) reflects a triumph of hope over reality and should duly correct". Investec has downgraded its rating on RBS stock from "hold" to "sell" with a target price of 325p, advising investors to reinstate shorts on the bank.
Gordon's note contains some compliments for RBS management that could be considered damning with faint praise. "RBS deserves credit for tangible progress in terms of cost take-out" for reducing its operating expenses to £3.2bn in the first quarter of 2014, from £3.4bn in the same quarter last year. Yet that cost takeout continues to lag the pace of RBS' revenue decline, "hence six years of losses (and counting)".
Reports of an early selldown of the government's stake in the RBS has left Investec analysts "mildly incredulous", as reports indicate that the sale "might prove positive for the share price in the near-term". Investec sees the presumption that the government is locked in for the long term as risk removing for shareholders, which it makes it hard to imagine that a sale could be taken positively.
Investec anticipates RBS delivering a "solidly loss-making performance" from the second quarter through to the end of this year, taking net asset value per share down to a new low of 361p by 31 December, before further declining to 352p in 2015. Upside risks to that forecast relate to any possible premium achieved on the planned float of its US subsidiary, Citizens. Legacy conduct issues and possible political meddling pose further risks to the downside on Investec's forecast.
For now, RBS shares have outperformed all other UK banks in the year to date, yet have increased by just one per cent in that period. London's leading index, the FTSE 100, has risen by 1.8 per cent. Today RBS shares are down by around 0.8 per cent at pixel time, trading at a fraction over 337p.