Edinburgh, Scotland-headquartered Royal Bank of Scotland plc ($RBS) received a significant boost on Nov. 11 after Jeffries analyst Joseph Dickinson raised the price target on the company’s shares and hinted that a turnaround was around the corner.
In a note to clients, Dickinson issued a “buy” rating and parted from “received wisdom” that RBS was a bad investment opportunity. Much of the skepticism concerning RBS followed the company’s creation of an internal “bad bank” to sequester toxic loans. While many analysts saw the bad asset quarantine as a red flag, Dickinson disagreed, arguing the move will increase the bank’s “visibility on returns of the core business… (and) fundamental capacity to pay a dividend in 2015.”
The creation of an internal bad bank is an increasingly popular method of dealing with toxic assets. Cyprus engaged a similar good bank/ bad bank scheme following the country’s March 2013 near banking collapse and subsequent bailout. In October the beleaguered National Bank of Greece (NBG) likewise gained regulatory approval to spin off its mountain of bad loans into a completely separate entity, boosting the bank’s health and invetsment profile significantly.
RBS has had a lackluster year, having lost 5.91 percent of its value since January. The upgrade edged RBS to near break even, as the bank gained 4.59 percent in midday trading to hit $10.82 a share.
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