Right now I’m analysing some of the most popular companies in the FTSE 100 to establish if they are attractive long-term buy and forget investments.
Today I’m looking at Royal Bank of Scotland (LSE: RBS) (NYSE: RBS.US).
What is the sustainable competitive advantage?
In the highly competitive world of high street banking, all banks — including Royal Bank of Scotland — lack a genuine sustainable competitive advantage that can always keep it ahead of the pack .
Having said that, a buy and forget strategy could be the best way to invest in Royal Bank of Scotland, as over the long term, Royal Bank of Scotland’s established position on the UK high street is likely to work to the bank’s benefit. Still, the company has a number of short-term risks that could significantly change its outlook.
Additionally, the bank lacks any ability to set prices as the interest rate that it is allowed to charge is controlled by the Bank of England.
Nonetheless, as a state-backed bank, some customers could perceive the bank to be safer than some of its peers. Although, it remains to be seen what the government will do with it share of the company and a forced break-up of Royal Bank of Scotland is still on the cards.
Company’s long term outlook?
Over the long term, it is unlikely that Royal Bank of Scotland will be displaced from its position on the UK retail banking scene as the company is already well entrenched in the market.
However, Royal Bank of Scotland’s chequered history coupled with constant political wrangling over the bank’s future makes it almost impossible to try and predict the company’s long-term outlook. This level of uncertainty is not a good trait in a buy and forget share.
Still, demand for the bank’s products and services should remain steady as being one of the largest banks in the UK, Royal Bank of Scotland has a consistent flow of customers.
Foolish summary
All in all, based on the uncertainty surrounding Royal Bank of Scotland’s future, the company does not look like a good share to buy and forget. Having said that, as the majority of the company is owned by the government and the bank is one of the largest in the country, it is unlikely that the bank will go out of business completely anytime soon.
However, based on its history, I have to rate Royal Bank of Scotland as a poor share to buy and forget.
