I expect Royal Bank of Scotland’s (LSE: RBS) struggle to pull itself from the mire could well continue long into the future.
RBS reported a ninth successive annual loss for 2016 last month, the bank’s pre-tax loss swelling to £7bn from £2bn a year earlier. As well as being crimped by £5.9bn worth of misconduct charges, the business was also smacked by £2.1bn of restructuring costs.
The financial colossus advised that “RBS currently expects that 2017 will be its final year of substantive legacy clean-up with significant one-off costs,” adding that “we anticipate that the bank will be profitable in 2018.”
But even the most patient of investors must now be bored of ‘jam tomorrow’. As well as facing a further build in PPI-related costs ahead of a 2019 claims deadline, other litigation issues may also rear their head later down the line. And of course RBS’s costly transformation drive has much further to run.
Besides this, it also faces a poor revenues outlook thanks to a combination of over-aggressive asset shedding and expectations of economic cooling in Britain in the medium term. I believe the bank still carries too much uncertainty for savvy investors.
Don’t toil with oil
The strong prospect of oil prices never returning to their previous glories makes me less-than-enthused by the investment outlook for BP (LSE: BP) too.
In the near term there are plenty of reasons for investors to remain sceptical over a recovery in black gold values. Baker Hughes rig count data from the US today is expected to show a seventh straight weekly rise, the steady build in operating units forcing analysts to upgrade their forecasts for US production in 2017 and beyond.
The main takeaway from OPEC’s output freeze agreement in November, along with its success in roping-in non-cartel-members like Russia, is encouraging many other crude-producing nations to ratchet up production and ride the mild recovery in oil prices, keeping the market’s supply/demand balance in business.
So any charge beyond the current $50 per barrel Brent range remains a pipe dream at present, particularly as the current OPEC deal — slated to last until summer — is in danger of unravelling. Indeed, Saudi Arabia’s willingness to keep producing under its own target is being increasingly tested as other group members like Iran pump above their allowed quotas.
Looking at the longer term, the determination by governments across the world to move towards greener sources remains undimmed despite the pro-oil and gas policies of President Trump.
And the falling costs of such sources threaten to put earnings at BP under the cosh much sooner. Indeed, a report co-authored by the Grantham Institute at Imperial College London and the Carbon Tracker Initiative last month indicated that surging global demand for electric cars and solar panels could see oil and gas demand growth screech to a halt by 2020.
I reckon the prospect of BP’s top line coming under increasing pressure in the years ahead makes it an extremely-unappealing pick for near- and long-term investors alike.