Will Royal Bank Of Scotland (RBS) Rally Post Q1 Earnings?

The Royal Bank of Scotland Group (LON:RBS) plc (TO:RBS) is scheduled to report first-quarter 2017 results on Apr 28.

The company reported operating loss in the fourth quarter. Results were affected by elevated litigation and conduct charges, along with restructuring costs.

Despite the disappointing results, RBS’ shares jumped nearly 10% on the NYSE for the three-month period ended Mar 31, 2017. The increase was largely driven by gradual improvement in the macroeconomic backdrop and a positive implication of the bank’s restructuring activities.

RBS, which was bailed out with £45 billion by the British government in 2008, has been striving for growth with several restructuring initiatives. These include cost-reduction measures, reducing geographic footprint and capital build-up efforts, while remaining focused on its strategy to become a smaller and simpler bank.

The bank’s ability to cope with broader industry challenges amid its overhauling moves remains a key area to watch this earning season. So, will the upcoming earnings release lead to further improvement in RBS’ share price? Let’s check out the factors that are likely to impact the results.

Factors to Impact Q1 Results

The Edinburgh-based banking giant experienced decline in net fees and commissions in the recent quarters and we do not expect this quarter to display substantial strength. The company has downsized its investment banking division, which is likely to witness a decline. However, the company’s revenues from advisory should record significant improvement, as M&A activities were strong during the quarter.

As the bank remains focused on expediting its ongoing overhaul, the quarterly results will be affected by further significant restructuring charges. Also, given RBS’ exposure to numerous lawsuits and investigations, the company might have kept additional reserves for litigation expenses, which could dampen the bottom line to some extent.

However, expense base may get some respite owing to RBS’ continued cost-control efforts. In addition, the company might have benefited from the ongoing economic recovery (albeit at a slow pace) in the UK and Ireland – the major domestic markets. Growth in core UK loan business, particularly in the mortgage space, could act as a positive and improve the company’s interest income.

Moreover, net interest margin is expected to increase partially, reflecting the consistent benefit from reductions in the low yielding non-core assets.

Royal Bank Scotland PLC (The) Price

Royal Bank Scotland PLC (The) Price | Royal Bank Scotland PLC (The) Quote

Currently, RBS currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Among other foreign banks, Mitsubishi UFJ Financial Group, Inc. (NYSE:MTU) , Itau Unibanco Holding S.A. (NYSE:ITUB) and UBS Group AG (NYSE:UBS) are scheduled to report results on May 15, May 3 and Apr 28, respectively.

The Best & Worst of Zacks

Today you are invited to download the full, up-to-the-minute list of 220 Zacks Rank #1 "Strong Buys" free of charge. From 1988 through 2015 this list has averaged a stellar gain of +25% per year. Plus, you may download 220 Zacks Rank #5 "Strong Sells." Even though this list holds many stocks that seem to be solid, it has historically performed 6X worse than the market. See these critical buys and sells free >>