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ShoreCap stays at 'hold' on RBS, awaiting DoJ decision on RMBS suit
ShoreCap stuck to a 'hold' recommendation for shares of RBS following the lender's 'in-line' first quarter figures, pointing to the yet unresolved outcome of the US Department of Justice's investigation into alleged historical mis-selling of residential mortgage-backed securities in the States.
That, after all, remained a key driver of the investment case for RBS, ShoreCap's Graeme Kyle said.
"While underlying operating performance is improving, the outlook continues to be overshadowed by the impending US RMBS settlement with the DOJ for which the timescale is out of the group's control," Graeme said in a research report sent to clients.
"Note that our dividend forecasts is predicated on the US RMBS settlement being resolved in the current financial year," he added.
Indeed, the 'tail risk' associated with the risk of future misconduct redress and litigation costs translated into a 20% haircut for on the broker's fair value estimate for the shares, then at 265p.
"We will await the resolution of the US RMBS settlement before deciding whether it is appropriate to take a more active stance on the shares and retain our current preferences for Lloyds."