About the only thing I got right about my brief foray into holding shares in Royal Bank of Scotland Group (LSE: RBS) (NYSE:RBS.US) was selling at the right time.
I bought the wrong bank and for the wrong reason soonafter the financial crisis, before finally seeing the light in 2013 and selling at around 350p a share.
Imade a decent profit but was rather ashamed about it, because this was evidently a lucky trade rather than a wise investment.
Bring Me Sunshine
Two years later and shares in the stricken bank aretrading at just 345p, and Im wondering who is still clinging ontothis stock.
Why would you hold a bank that still has a daunting mountain to climb, when FTSE 100 fellow traveller Lloyds Banking Group (LSE: LLOY) (NYSE: LYG.US) is nearingthe sunlit uplands?
While the taxpayer now holdsjust 18.99% of Lloyds, and should own nothing at all by the end of the year,RBS is still more than 80% State-owned.
Chancellor George Osborne is saidto be planning a Thatcher-style privatisation, possiblyinSeptember, in a bid to recoup some of the governments 45.2bn outlay.But the first tranche of RBS willbe sold at way below the 502p per share thetaxpayer paid. In contrast, at todays 88.5p, Lloyds iscomfortablyabove the governments break-even price of 73.6p.
Osborne will no doubt be hoping that the excitement generated by a massiveprivatisation will drive up the price for the next round of sell-offs, and he may well be right.Despite widespread expectations that selling off Lloyds might dilutethe share price, it is up 43% over the past two years.
The Low Road
Many investors could be tempted to buy RBS now, before the excitement builds. But first, they must understand how far the bank has to travel.
Although it reported a first-quarter underlying profit of 1.6bn, this translated to a 446m loss due to ongoing restructuring costs, and litigation and conduct penalties.Total Q1 income fell 14% year-on-year to 4.3bn.
Chief executive Ross McEwan has a long way to go to achieve his aim of almost halving the banks risk weighted assets to 183bn.
It wont help that RBS is said to be in line fora6.5bn penalty for mis-selling sub-prime mortgages and mortgage securities in the US. Nobody want to mess with Yanks, just ask Sepp Blatter.Worse, this could make the unlikely prospect of a 2015 final dividend even less likely.
Home Run
By comparison, ifLloyds is 100% in private hands by the end of this year, thatwould give sentiment another lift.
And with State shackles removed, it may also be yielding 4.7% by the end of 2016, yet it still trades at less than 11 times earnings.
RBS still has a long journey ahead of it, but Lloyds is almost home.
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Harvey Jones has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.
