Investors eye up RBS following McEwan’s arrival

Experts say a change of management for part-nationalised UK banking giant the Royal Bank of Scotland represents an opportunity for investors – as long as they are ready for a bumpy ride.

Last week, Ross McEwan took over from Stephen Hester as chief executive of RBS, to be met with a host of issues surrounding the bank’s future.

These include whether it will follow Lloyds Banking Group into reprivatisation and whether it will be split into ‘good’ and ‘bad’ banks, with its worst assets funnelled into a government-owned entity.

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Jupiter’s Guy de Blonay, who has spoken in the past of his concerns about RBS, said he started to invest in the bank following the original announcement of Mr Hester’s departure in June, via his £502m Jupiter Financial Opportunities fund. Mr de Blonay said he was “much more positive in the past few months on the story”, prompted by a strengthened management team.

“The tone is a strong commitment to transform an institution seen as a normal bank into a really good bank,” he said.

Mr de Blonay said the Financial Opportunities fund had invested in Lloyds earlier, to take advantage of its turnaround, and later looked at RBS because it was too cheap to ignore.

“When RBS hit that low in June following the departure of Mr Hester, on a valuation basis and [in terms of] bad news hitting the company, that marked quite a low point and forced us to reconsider the investment opportunity,” the manager said.

He pointed out that the share price fell as low as 270p per share following the announcement, and was now approximately 370p, which was still significantly cheaper than Lloyds.

“Investors decided to get on board as they are moving on from a very low point,” he added.

“It was in a bad way and now they are looking forward to a reward from the restructuring. The economy seems to be improving and we have found somebody that seems to be everything investors want in a leader.”

RBS was “always going to be a more complicated turnaround” than Lloyds, Jessica Ground, manager on the Schroder UK equities team said, because it is bigger and more internationally focussed.

However, she said one positive from the Lloyds sale was that it set a precedent for public and private shareholders working together, although she thought in the case of RBS it would take between 18 months and two years to “normalise” its relationship with the government.

Ms Ground noted that while there were a lot of issues facing the bank, the fact that it was trading at a discount meant much of this was already accounted for in the share price, which was lower than its peers.

But Matthew Beesley, head of global equities at Henderson, said there were reasons to question what appeared to be good value, due to the bank’s tricky relationship with the government.