Citi says ‘sell’ RBS, despite the City’s misgivings

The Times Alex Ralph Market Report

Last updated at 12:01AM, September 2 2015

Citi was one of several bulge-bracket banks that helped the government to sell 630 million shares in RBS last month Chris Ratcliffe/Bloomberg via Getty Images
ot all analyst notes make required reading, but Citigroup’s research on Royal Bank of Scotland is likely to have Treasury mandarins sitting up.Citi was one of several bulge-bracket banks that helped the government to sell 630 million shares in RBS last month under ministerial plans to offload at least three quarters of the government’s stake over the course of this parliament.

The disposal of a 5.4 per cent stake at 330p a share to institutional investors attracted criticism, from opposing MPs and some parts of the City, that the taxpayer had been sold short. Analysts at Citi told clients yesterday that the shares should be cheaper still, reiterating a “sell” rating and setting a target price of 300p, up from 290p. It said that RBS’s strategy of shifting back to British retail and commercial banking should result eventually in a bank “simpler, stronger and able to deliver sustainable double-digit returns”, but the time frame over which this is likely to be achieved should not be underestimated: “We see significant near-term execution risks, including core revenue attrition, and further book value erosion.”

Shares in RBS, which have tumbled amid a wider equities slide further below the average taxpayer rescue price of 504p, fell another 8¾p to 328p.

Sentiment on the wider market was not much brighter, with last week’s volatility in London shares continuing. Again, China was the trigger. Jitters over a contraction in the manufacturing sector of the world’s second-biggest economy sent the FTSE 100 down 189.40 points to 6,058.54, broadly tracking falls in other leading European markets.

The Footsie, heavily weighted towards global mining stocks, was led lower by those shares, once more sold off on the back of weaker copper prices. Glencore led the way, down 14¾p to 133½p, despite Canaccord Genuity upgrading it to a “speculative buy”.

Other stocks exposed to China also bore the brunt. Standard Chartered, the Asia-focused bank, fell 40¾p to 724¼p. Burberry, popular among the Chinese, lost 70p to £13.41.

Only one blue chip avoided the stampede. Meggitt, the aerospace engineer, has been the subject of bid speculation this year. Rothschild, a longstanding financial adviser, has been rumoured to have drawn up plans to see off a predator, with a merger with Cobham, the defence contractor, up more than 3p to 284¾p, reportedly among the options. Traders said yesterday they had heard of no fresh rumours. Meggitt, up 11¼p at 488¾p, has also attracted interest from First Pacific Advisors, a Los Angeles-based investment manager, which revealed a 5 per cent stake in the company shortly before markets closed for the bank holiday on Friday.

Bullish broker research helped to stem losses in the FTSE 250, down 266 points at 16,840.36. Ocado, 4¼p higher at 347p, was among those supported by an upgrade. Exane BNP Paribas rated the stock “neutral” and said that it expected the online grocer to sign deals with international retailers.

Pushing the mid-caps lower was Man Group, down almost 11p at 150¼p, after reports that the boss of its China business had been taken into custody amid Beijing’s crackdown on market volatility. Evraz, the Russian steelmaker that is controlled by Roman Abramovich, tumbled 8p to less than 71p.

Wall Street report That’s it, summer’s over and fall — as in autumn — has begun. A dramatic fall, too, as Wall Street kicked off September fretting about Chinese economic data and the Dow Jones industrial average tumbled a whopping 469.68 points to 16,058.35.

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