RBS downgraded ahead of expected loss

Analysts at Investec have downgraded Royal Bank of Scotland (RBS) to 'sell' as the lender looks set to report another big loss for the fourth quarter of 2012.

More than five years on from the start of the financial crisis and RBS is still struggling to recover, with an expected loss of £1.7 billion, and net asset value per share that should fall to around 460p.

The analysts did point out that 2012 saw much of the heavy lifting ­ with some £7.2 billion of net negative exceptional items, the majority of which should not recur, but warned that "normality may still not return before 2017."

On top of this, Ian Gordon at Investec commented: "In our report, The Delusion of Growth, we cited weak macro trends as further delaying RBS's path back to normality. As we discuss, Bank of England data for December has not enthused us either."

RBS still expects to meet its target capital ratios. On 31 September 2012 it reported a group-wide tier one capital ratio (the ratio of a bank's core equity capital to its total risk-weighted assets)  of 11.1% and it does not expect this ratio to fall below 10%. Investec believes this ratio will also grow after 2013.

The bank has not been helped by recent scandals, not least the most recent evidence of mis-selling of products, which emerged this week. This time it is the mis-selling to small businesses of interest-rate hedging products.

The Financial Services Authority (FSA) has looked at a sample of 173 cases from Barclays (BARC), HSBC (HSBA), RBS and Lloyds Banking Group (LLOY) and found evidence of mis-selling in more than 90% of cases.

This is not on the same scale as the payment protection insurance (PPI) scandal, but the FSA has estimated there are around 400,000 cases to be reviewed.

On Thursday afternoon RBS said, rather cryptically, that as a result of the likely hit from interest-swap mis-selling it expected to "meaningfully increase" the nominal £50 million it put aside in the second quarter of 2012.

On top of this, the Libor scandal rumbles on. A division of the bank might be forced to plead guilty to criminal charges in the US for rigging Libor as part of its settlement for manipulating the key interest rate. RBS is expected to be fined a total of around £500 million by regulators on both sides of the Atlantic, but the US Justice Department is also reported to be considering whether to pursue criminal charges against the bailed-out bank.