Royal Bank Of Scotland Facing US$11bn Mortgage Fine Says HSBC
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Royal Bank of Scotland PLC faces a much higher fine than the market expects from the US Department of Justice for its involvement in mortgage mis-selling, according to HSBC.
The broker believes a settlement is imminent after RBS confirmed it is in full talks with the DoJ in its third quarter update.
Market forecasts are for RBS to be fined US$5bn-6bn, but HSBC cautions the final penalty might be anything up to US$12bn on a line through recent deals.
It has taken a cautious stance and has forecast an US$11bn fine though it does not expect this to have a material long term impact on the RBS franchise, but it will destroy surplus capital within the bank, affecting valuations.
Even so, the broker has raised both its earnings forecast and its share price target.
The rise in base rates has prompted a rise in expected earnings of 3-5% over the next three years, while the target price climbs to 280p.
Clearing the fine overhang will allow the UK government to start to sell down its stake and for RBS to resume dividends by the end of 2018, which would be very good news for the bank, said HSBC.
But as the market has already priced in a benign settlement, ‘hold’ is the view on the shares, which were unchanged at 275p.
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Author: Philip Whiterow
Source: PAI
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