Shares in part-nationalised lender Royal Bank of Scotland (RBS) are trading at 0.6 times tangible net asset value (tNAV) and close to a new 17-month high, which has prompted broker Investec to downgrade its rating for the stock from 'hold' to 'sell'.

"We are genuine admirers of the Hester/Van Saun turnaround project, but we were left somewhat perplexed by last week's excitement over RBS' exit from the APS. We're pleased that it happened, but in both practical and financial terms, nothing changed relative to expectations," said analyst Ian Gordon.

Shares rose strongly last Wednesday after it announced that it was leaving the government's Asset Protection Scheme (APS) insurance scheme set up to protect it from collapse during the financial crisis.

"We agree that it was necessary and appropriate for RBS to 'exit APS' before year-end in order to avoid paying incremental fees over and above the £2.5bn already charged for the notional protection. But let's be clear; the scheme was a charade from the first moment it was put in place (December 2009). At that time, although the outlook remained grim, there was no realistic prospect of this 'catastrophe-only' insurance scheme 'paying out'," Gordon said.

Investec forecasts another "jaw-dropping statutory loss" and a "bleak outlook for returns thereafter" when the company reports its third-quarter results on November 2nd. Specifically, the broker expects a pre-tax loss of £1.0bn and believes that return on equity (RoE) guidance will be 2% for 2013 and 4% for 2014.

A 255p target price for the shares has been maintained.

BC

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