February 27, 2018

Pegler’s market report – 27.02.18: RBS posts first profit since financial crisis

by David Pegler

in Insights Press Releases

As published in the Brighton Argus (27.02.18) Business section under the title Pegler’s Market Report:

RBS posts first profit since financial crisis

Taxpayer-controlled Royal Bank of Scotland has delivered its first profit in ten years, a milestone for the lender rescued by a £45bn state bailout at the height of the financial crisis. The profit will come as a welcome reprieve for RBS, which is still dogged by controversy, including its plans to axe a quarter of its UK branch network and over its past mistreatment of small businesses. Despite the positive news, shares of RBS fell because they failed to hit city estimates with slightly weaker-than-expected revenue. The prospect of a dividend still hinges on the final settlement with US authorities.

Earlier last week, Lloyds Banking Group climbed as it announced a £1bn share buyback and increased its dividend. In other banking news, Barclays posted a £1.9bn loss for 2017 after big hits from a range of one-off costs, many related to the sale of its Africa operation. Barclays’ 2017 dividend was unchanged at 3p, but the bank said the payout would rise to 6.5p in 2018.

IAG, which owns British Airways and Aer Lingus, is expected to keep growing its trans-Atlantic business and to increase the frequency to key short-haul summer destinations. The plans to increase capacity so forcefully come amid rising costs, particularly those linked to baggage handling and engineering. The company’s fuel bill, while down overall in 2017, started to rise in the final three months, which prompted some investors to question whether it can meet some of its performance targets.

Shareholders in housebuilder Persimmon have hailed victory after three of its bosses agreed to hand back £50m of shares earned through a controversial bonus scheme. The long-term incentive plan had drawn criticism from the City and politicians after a buoyant property market and the Government’s Help to Buy scheme helped Persimmon’s revenues and profits to surge, inflating the directors’ entitlements.

The number of unemployed people in the UK rose 46,000 at the end of 2017, with the jobless rate rising from 4.3% to 4.4%. Industry commentators highlighted that while this was the sharpest increase in the unemployment level the Office for National Statistics has seen in almost five years, the number of people in work has also continued to rise and there are fewer ‘economically inactive’ people. Meanwhile, pay growth rose to 2.5%. Pay is yet to outpace inflation, but with pay growth the fastest it’s been in a year it should potentially do so later in 2018, at least in the private sector.

Later today, all eyes will be on new Federal Reserve chair Jerome Powell’s first monetary policy testimony, which has taken on added importance in the wake of this month’s global sell-off sparked by inflation jitters in the US.

Pound watchers will be red alert on Friday for Prime Minister Theresa May’s key Brexit speech, in which she is expected to outline more details over the Government’s position on the UK’s future relations with the EU.

By David Pegler, Brighton Capital Management