3 things you need to know about Royal Bank of Scotland shares

RBS shares have crashed 54% this year. These three highlighted areas should interest any investor considering RBS stock, says Rachael FitzGerald-Finch.

| 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.

If you’re thinking of buying shares in the Royal Bank of Scotland (LSE: RBS), I think there are some things you should seriously consider. Shares in the bank have plummeted 54% so far this year which doesn’t compare well with the FTSE 100‘s relatively small 22% nosedive. But, on its own, this is not necessarily a show stopper. 

Indeed, as any Fool knows, a sound investment is more than just buying a stock at a lower price. It’s the result of sound research into a company’s situation and outlook. Which is why it’s worth highlighting three areas of interest to those thinking of buying RBS stock.

RBS is rebranding to NatWest Group

RBS is changing its name to NatWest Group to mark the “start of a new era” for the bank. Understandably, RBS is keen to move on from its association with the 2008 financial crisis and its £45b state bailout. Supposedly, the name change will not alter services for current customers.

However, its loss-making investment banking division, NatWest Markets, is being restructured and streamlined to try and improve profitability. But with foreign exchange gains in 2019 putting more into the bank’s coffers than any other single RBS banking division, I think there’s scope for more to be done elsewhere too.   

62% Royal Bank of Scotland Shares owned by government

That £45b state bailout bought the UK government 82% of the shares of the Royal Bank of Scotland in 2008. Over time, the government has sold part of its holdings and public ownership now accounts for around 62%. It was thought that the government would try to sell its stake by 2023–24. However, the Chancellor has confirmed that the bank will retain its share for at least another year to focus on the coronavirus response.

The problem with this is twofold. Firstly, there is the downward pressure it may have on the RBS share price. The government will sell at some point, the question is when. And secondly, it still leaves the bank subject to direct political interference it may not need or benefit from.

IT risk factors

In the 2019 half-year results, RBS highlighted information technology as a hazard that could impact its operations. Moreover, banks more generally are frustrated by IT failures and cyber-attacks because their networks are hard to protect. However, RBS in particular has a history of security breaches.

More and more of us are banking online, whether for business or personal reasons. Unless RBS manages to improve its cybersecurity, it may start pushing customers towards its more digitally-savvy, lower-cost competitors, reducing revenues.

Royal Bank of Scotland shares are currently trading around 110p. The bank has a tangible net asset value of around 309p and some analysts gave RBS a fair value of 272p back in January. I expect it’s dropped a bit since but it still offers a lot of bank for your money.

However, until the government sells its stake and RBS begins to become more competitive with its peers, I think there are better banks for your money.     

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.

Rachael FitzGerald-Finch has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Snowing on Jubilee Gardens in London at dusk
Investing Articles

Could December be a great month to buy UK shares?

Christopher Ruane sees some possible reasons to look for shares to buy in December -- but he'll be using the…

Read more »

Young mixed-race couple sat on the beach looking out over the sea
Investing Articles

Sticking to FTSE shares, I’d still aim for a £1,000 monthly passive income like this!

By investing in blue-chip FTSE shares with proven business models, our writer hopes he can build sizeable passive income streams…

Read more »

Growth Shares

BT shares? I think there are much better UK stocks for the long term

Over the long term, many UK stocks have performed much better than BT. Here’s a look at two companies that…

Read more »

British Pennies on a Pound Note
Investing Articles

After a 540% rise, could this penny share keep going?

This penny share has seen mixed fortunes in recent years. Our writer looks ahead to some potentially exciting developments in…

Read more »

Silhouette of a bull standing on top of a landscape with the sun setting behind it
Investing Articles

Is the S&P 500 going to 10,000 by 2030? This expert thinks so

One stock market strategist sees animal spirits taking hold and driving the S&P 500 index even higher by the end…

Read more »

Investing Articles

I’m expecting my Phoenix Group shares to give me a total return of 25% in 2025!

Phoenix Group shares have had a difficult few months but that doesn't worry Harvey Jones. He loves their 10%+ yield…

Read more »

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

14.5bn reasons why I think the Legal & General share price is at least 11% undervalued

According to our writer, the Legal & General share price doesn’t appear to reflect the underlying profitability of the business. 

Read more »

Young black man looking at phone while on the London Overground
Value Shares

After a 16% drop, FTSE 100 stock JD Sports Fashion looks like a steal to me

This FTSE 100 stock has tanked since mid-September. Edward Sheldon believes that there's value on offer after the share price…

Read more »