2-Star Stocks Poised to Plunge: Royal Bank of Scotland?

By Brian D. Pacampara
November 18, 2009 | Comments (3)

Recs

9

Based on the aggregated intelligence of 140,000-plus investors participating in Motley Fool CAPS, the Fool's free investing community, government-controlled Royal Bank of Scotland (NYSE: RBS) has received a distressing two-star ranking.

With that in mind, let's take a closer look at RBS' business and see what CAPS investors are saying about the stock right now.

RBS facts

Headquarters (Founded)

Edinburgh, U.K. (1727)

Market Cap

$36.2 billion

Industry

Diversified banks

Trailing-12-Month Revenue

$62.46 billion

Management

CEO Stephen Hester

CFO Bruce Van Saun

1-Month Return

(16.1%)

Competitors

Deutsche Bank (NYSE: DB)

Lloyds Banking Group (NYSE: LYG)

Citigroup (NYSE: C)

CAPS Members Bullish on RBS Also Bullish on

Bank of America (NYSE: BAC)

General Electric (NYSE: GE)

CAPS Members Bearish on RBS Also Bearish on

Capital One (NYSE: COF)

Sources: Capital IQ (a division of Standard & Poor's) and Motley Fool CAPS.

On CAPS, 16% of the 460 members who have rated RBS believe the stock will underperform the S&P 500 going forward. These bears include Risquette and All-Star adartmouth, who is ranked in the top 15% of our community.

Just two weeks ago, Risquette informed Fools on some regulatory issues working against the stock: "The bank has a great deal of repairing on its hands and the recent EU push to limit the amount of branches coupled with the UK moving toward to having a more 'competitive' environment for banks will make things tough for some time."

In a pitch from three days later, adartmouth elaborates on the mother of all bailouts:

The world's biggest bailout is costing money this co. doesn't have. [T]he equity is toast as it is in a debt / death spiral due to bailout financing costs. [M]aybe an ENORMOUS rights issue will save the stock from bankruptcy, but the equity will be diluted. ... [T]his is the Lehman that was allowed to carry on racking up losses, combined with the northern rock and a bit of CIT. [T]hrow in some CRE catastrophes, and a bit of GE style unsustainable government financing, and you have a potential zero here.

What do you think about RBS, or any other stock for that matter? Make your voice heard on Motley Fool CAPS today. The CAPS community is waiting to hear your opinions. CAPS is 100% free, so get started!

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Fool contributor Brian Pacampara owns no position in any of the companies mentioned. The Fool's disclosure policy always gets a perfect score.

Comments from our Foolish Readers

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  • Report this Comment On November 18, 2009, at 1:29 PM, Teacherman1 wrote:

    Pass this by and buy LYG.

    RBS was only a little better than HBOS, the bank that LYG took over, which gave us a buying opportunity.

    There will still be some ups and downs in LYG, but they are already to raise additional capital.

    They were just fighting to keep from divesting anything of value to satisfy the EU and to keep the UK Govt from becoming a majority owner like they are of RBS.

    The EU has approved their restructuring plan, so they should have it underway soon.

    It will still gyrate some, but this is the cheapest good big bank left.

    The EU wants more competition, so there will be one or two more banks created from the divestitures from them and RBS.

    RBS is CITI on steroids.

    JMO and worth exactly what I am charging for it.

  • Report this Comment On November 23, 2009, at 10:38 AM, Greenyards wrote:

    Interesting that RBS could be toast. Interesting too that RBS has had £45 Billions added to its equity by shareholders, HM Treasury and by asset sales to date.

    It currenty has a market capitalisation just under £22Billions and Govt guaruntee against failure by bad debts/loans. In my book it is about the safest bank for investment in the world. Too big to fail and underwritten by the British Government and by US TARP? HM Govt overall tax yield from the bank was 5-6 billions a short time ago.

    Every turnaround specialist talks the initial investment down until it is time to talk it back up. A cleaned up Purified RBS with ongoing profits of 6-9 Billions should emerge in 2-3yrs. With a post recession PER of 9 that gives a Market Cap of £50B -£90B.

    In 2013-5 ...65p - £1.20 share , underwritten by Govt, with a massive vested interest in success, within 3 - 5 years.

    TOAST it is not , investment opportunity for those with a bit of patience - SUPERB.

  • Report this Comment On November 23, 2009, at 10:46 AM, Shindoesca wrote:

    Agreed Teacherman, LYG should perform better then RBS.

    Lloyds being pressured by UK's government and treasury to takeover HBOS and the subsequent effects are very serious.

    But then the same was the case in the US with BAC and your treasury and FED

    At the same time LYG had a very good reputation before the purchase in the way they managed their business and current valuation make if a decent long term investment for new investors.

    Time will tell..

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