Investment Column: Uncertainty has made RBS a gambler's stock

At RBS much of the hard work is done. It turned a profit last quarter and is making steady but unexciting progress

We've seen the City's reaction to Stephen Hester's departure from RBS, and it's not pretty. If you had shares in the bank on the day it was announced you would have woken up to find them worth quite a bit less.

The investment community, for which read City institutions, is less than impressed with the way this has been handled, and no wonder. Regardless of Mr Hester's public profile, he had a strong following in the City.

So what do you do with those shares now?

The point about RBS is that much of the hard work is done. It turned a profit in the last quarter. It's making steady, if unexciting progress, and that should continue.

All the really big strategic decisions have either been taken by RBS (eg the decision to part-float its US arm, Citizens) or for RBS (eg the forced sell-off of 300-plus branches as Williams & Glyn's).

Whoever the new top man is – Standard Chartered's finance chief Richard Meddings is linked to just about every big banking job that comes up, but the bookies reckon it'll go to an internal candidate such as Nathan Bostock – it's highly likely that the bank will steer much the same course operationally as it has been doing.

That's not a terribly exciting course. Britain's economy is in poor shape, margins in retail banking are low, while the investment bank, never a top-tier player in the first place, is a shadow of its former self.

RBS will continue its steady recovery, but with all the uncertainty right now it has become a gambler's stock. Will the Government try a break-up if the Parliamentary Commission on Banking Standards recommends one? Will the new guy be able to restore confidence? Are there any more skeletons in the closet?

We just don't know. RBS will be fun for people who like to trade in and out of stocks, and especially day traders. It had recovered some of the initial losses when the stock market opened by lunchtime. Everyone else stay away. There's too much we don't know. And even at just 0.7 times the shares' net asset value, there's an argument that RBS isn't all that cheap given the risks it poses. It's not as if you're getting a dividend for your trouble, and nor will you until (possibly) 2015.

Traders might like to dip in if the shares dip beneath 300p, however.

As for those who are thinking more long term, the safety-first choice is easy: buy HSBC. It trades on nearly 11 times this year's forecast earnings, and sits at 1.4 times forecast net asset value of the businesses it owns. By any metric, it ain't cheap. But here's the thing. The bank is already offering a 4.9 per cent forecast yield (I'm using Investec's numbers here rather than the consensus). There are prospects of that getting higher. Its conservative (good) management are unlikely to splash the cash on deals, but they've got too much of it (even for a mega-bank). Which may mean good times for shareholders, who ought to see some of it flowing to them.

What's more, even if HSBC disappoints on income, costs are coming down, and so are bad loans. Bosses' pay at these institutions never fails to infuriate, but HSBC is an easy buy.

Same goes for Barclays. It's been recently talking up its corporate division (which wins because it's not Lloyds or RBS, but a winner is a winner all the same) and represents perhaps a more risky play. But come on, this is a bank which trades on just 0.8 times the net asset value of its shares. That's silly cheap. It has a secure and rising yield (the consensus is at 2.4 per cent, rising to just over 3 pr cent next year) and is on 8 times earnings.

Management is stable now, and while you'll get some bumps in the road (it's not easy for banks with interest rates being so low) you should make a good return from owning these shares. I've been a consistent buyer of both HSBC and Barclays, and that isn't changing.

As for Lloyds, the shares are high enough right now. If you're in, I'd be inclined to take some profits. They're very dependent on the UK economy. Recently earnings releases haven't thrilled, and I don't see any catalyst to take them higher any time soon.

Start your day with The Independent, sign up for daily news emails
ebooks
ebooksA special investigation by Andy McSmith
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Ashdown Group: Editor-in-chief - Financial Services - City, London

£60000 - £70000 per annum + benefits : Ashdown Group: A highly successful, glo...

Guru Careers: Pricing Analyst

£30 - 35k (DOE): Guru Careers: We are seeking a Pricing Analyst with experienc...

Ashdown Group: Treasury Assistant - Accounts Assistant - London, Old Street

£24000 - £26000 per annum + benefits : Ashdown Group: A highly successful, glo...

Ashdown Group: Sales Team Leader - Wakefield, West Yorkshire

£21000 - £24000 per annum: Ashdown Group: The Ashdown Group has been engaged b...

Day In a Page

Revealed: Why Mohammed Emwazi chose the 'safe option' of fighting for Isis, rather than following his friends to al-Shabaab in Somalia

Why Mohammed Emwazi chose Isis

His friends were betrayed and killed by al-Shabaab
'The solution can never be to impassively watch on while desperate people drown'
An open letter to David Cameron: Building fortress Europe has had deadly results

Open letter to David Cameron

Building the walls of fortress Europe has had deadly results
Tory candidates' tweets not as 'spontaneous' as they seem - you don't say!

You don't say!

Tory candidates' election tweets not as 'spontaneous' as they appear
Mubi: Netflix for people who want to stop just watching trash

So what is Mubi?

Netflix for people who want to stop just watching trash all the time
The impossible job: how to follow Kevin Spacey?

The hardest job in theatre?

How to follow Kevin Spacey
Armenian genocide: To continue to deny the truth of this mass human cruelty is close to a criminal lie

Armenian genocide and the 'good Turks'

To continue to deny the truth of this mass human cruelty is close to a criminal lie
Lou Reed: The truth about the singer's upbringing beyond the biographers' and memoirists' myths

'Lou needed care, but what he got was ECT'

The truth about the singer's upbringing beyond
Migrant boat disaster: This human tragedy has been brewing for four years and EU states can't say they were not warned

This human tragedy has been brewing for years

EU states can't say they were not warned
Women's sportswear: From tackling a marathon to a jog in the park, the right kit can help

Women's sportswear

From tackling a marathon to a jog in the park, the right kit can help
Hillary Clinton's outfits will be as important as her policies in her presidential bid

Clinton's clothes

Like it or not, her outfits will be as important as her policies
NHS struggling to monitor the safety and efficacy of its services outsourced to private providers

Who's monitoring the outsourced NHS services?

A report finds that private firms are not being properly assessed for their quality of care
Zac Goldsmith: 'I'll trigger a by-election over Heathrow'

Zac Goldsmith: 'I'll trigger a by-election over Heathrow'

The Tory MP said he did not want to stand again unless his party's manifesto ruled out a third runway. But he's doing so. Watch this space
How do Greek voters feel about Syriza's backtracking on its anti-austerity pledge?

How do Greeks feel about Syriza?

Five voters from different backgrounds tell us what they expect from Syriza's charismatic leader Alexis Tsipras
From Iraq to Libya and Syria: The wars that come back to haunt us

The wars that come back to haunt us

David Cameron should not escape blame for his role in conflicts that are still raging, argues Patrick Cockburn
Sam Baker and Lauren Laverne: Too busy to surf? Head to The Pool

Too busy to surf? Head to The Pool

A new website is trying to declutter the internet to help busy women. Holly Williams meets the founders