Royal Bank of Scotland Group plc & Standard Chartered PLC Bottom In Stress Test

Royal Bank of Scotland Group plc (LON: RBS) and Standard Chartered PLC (LON: STAN) come out bottom in the BoE’s latest test.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

The results of the latest Bank of England (BoE) stress tests are in, and Royal Bank of Scotland (LSE: RBS) and Standard Chartered (LSE: STAN) came out bottom of the pile — the only two found not to have sufficient capital strength.

The test, applied to the seven banks operating in the UK with £50bn or more in deposits, imagines a tough scenario of low oil, bad debts, and potential misconduct charges, and saw Lloyds Banking Group and Barclays come out well ahead of the BoE’s minimum requirements.

But despite their weak performance, neither RBS nor Standard Chartered will have to come up with a new plan as both had already raised new capital since the end-of-2014 snapshot used in the tests.

Should you invest £1,000 in Ocado right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Ocado made the list?

See the 6 stocks

The question for us is, does this result really mean RBS and Standard are the two weakest banking investments in the FTSE 100 right now? I think the answer is yes.

Shares up

RBS, whose shares are up 3% to 312p as I write (presumably due to relief that no changes have been ordered), has lagged bailed-out rival Lloyds in the recovery stakes, but we still see its shares on a significantly higher forward P/E — for 2016, RBS is on a multiple of 13.5 compared to Lloyds’ 9.5.

That might be expected if we had significantly better EPS growth forecasts for RBS in 2016, but we don’t. In fact, after the first significant profit in years expected this year, RBS earnings are forecast to fall 10% in 2016, while Lloyd has a 7% fall on the cards. On top of that, RBS isn’t back to paying dividends yet — it’s hoping for a modest yield of around 0.5% next year, but Lloyds is predicted to hand over 5%.

And Standard Chartered (up 1.5% to 566p), well, that bank’s international difficulties are well known, and its capital strength in the UK seems like the least of its problems.

Heavily exposed to China and the Far East, and with its Korean operations a disaster in recent years, the bank finally caved in to shareholders’ demands and recently had a board shake-up. But there’s still a significant fall in earnings expected this year and only a relatively mild recovery next — and with the Chinese economy (and stock market) looking shaky, it’s certainly not one I’d buy.

Tougher regulations

Capital regulations are set to be toughened up even more, and the BoE’s next step up in capital requirements will require an extra £10bn to be set aside in what is called a “countercyclical capital buffer”. That’s going to have to come out of profits or from new equity or debt issues — and that will mean less cash going into shareholders’ pockets.

Still, with the BoE having declared that the UK’s financial system is now out of its “post-crisis period”, and with the banking sector coming through the test looking pretty resilient, the future for banking shares is surely looking brighter today — but they’re not all equal by any means.

Should you invest £1,000 in Ocado right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets.

And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Ocado made the list?

See the 6 stocks

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Alan Oscroft owns shares in Lloyds Banking Group. The Motley Fool UK has recommended Barclays. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

The flag of the United States of America flying in front of the Capitol building
Investing Articles

10 FTSE shares falling today after President Trump’s tariffs bombshell!

Our writer explains why JD Sports Fashion from the FTSE 100 and a diverse bunch of other UK stocks are…

Read more »

Fans of Warren Buffett taking his photo
Investing Articles

With value investing back in vogue, I’m taking a leaf out of Warren Buffett’s playbook

With tariffs and trade wars resulting in heightened market volatility, Andrew Mackie takes comfort in Warren Buffett’s words of wisdom.

Read more »

Hand of person putting wood cube block with word VALUE on wooden table
Investing Articles

Around a 1-year high, is there enough value left in Next’s share price to make it worth me buying?

Next’s share price has risen a lot in eight months, but there could still be a lot of value left…

Read more »

Group of young friends toasting each other with beers in a pub
Investing Articles

OMG DYOR but IMO this ‘cool’ FTSE 100 stock offers bangin’ VFM!

Despite being one of the least trendy 50-somethings around, our writer considers how Gen Z could help push this FTSE…

Read more »

Investing Articles

2 cheap FTSE 100 and FTSE 250 growth stocks to consider as stock markets sink

I think these Footsie and FTSE 250 growth shares could be very shrewd buys to consider in the current climate.…

Read more »

Investing Articles

3 shares I’ve bought in the 2025 stock market sell-off

The stock market has experienced a lot of turbulence in recent weeks. Edward Sheldon has been taking advantage and buying…

Read more »

Investing Articles

Investors considering HSBC shares could aim for £8,453 a year in passive income from just £5 a day!

A relatively small daily investment in HSBC shares over several years can produce an extraordinary level of annual passive income…

Read more »

Investing Articles

The Rolls-Royce share price has fallen! Is this the moment investors have been waiting for?

Even the Rolls-Royce share price can't escape current stock market volatility, falling slightly over the last week. Should investors consider…

Read more »