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RBS Braces for No-Deal Brexit, Seeks German Banking License

Zacks Equity Research

In a move to prepare itself against no-deal Brexit, The Royal Bank of Scotland PLC RBS applied for a German banking license to make sure that the company can freely trade across the region. The news was reported by The Financial Times.

Per the article, RBS plans to convert the current Frankfurt branch into a regional “payments hub” that will be able to process and settle euro-denominated payments, and give loans to large German clients along with taking in deposits.

Moreover, the state-owned bank has started to make preparations for the move. It plans to hire about 12 employees, which would include treasury and local regulation specialists.

Though the move applies to all subsidiaries, RBS expects it to have an impact on NatWest Markets N.V only as it trades across the bloc. Notably, RBS already has a Dutch license, which it had acquired along with ABN Amro before the crisis. With this license, the company will be able to operate freely across the European Union (“EU”).

Early December 2018, the bank disclosed that it had put forth request to the regulators to allow it move about £6 billion of assets and £7 billion of liabilities to NatWest. This is expected to impact nearly 30% of customers in NatWest markets.

In case a deal is struck between Britain and EU, the transfer of assets would be a slower process and be “subject to further political developments,” per the bank.

Overall, Frankfurt seems to have been a favorite for majority. About 30 of the 37 U.K.-based financial institutions that have applied for licenses to the European Central Bank have picked Frankfurt as their EU base.

Notably, RBS is on its road to recovery. In August 2018, the company declared its first dividend post 2008 crisis, which led to boost investors’ confidence. However, heightened competition, volatility in the global economy and litigation costs are some major concerns surrounding the company’s growth.

Shares of RBS have lost 23.1% over the past six months compared with 10.7% decline recorded by the industry it belongs to.

Zacks Rank & Stocks to Consider

The stock currently carries a Zacks Rank #3 (Hold).

A few better-ranked stocks in the same space are ICICI Bank Ltd. IBN, Oversea-Chinese Banking Corporation Ltd. OVCHY and HDFC Bank Ltd. HDB, carrying a Zacks Rank of 2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

ICICI Bank’s Zacks Consensus Estimate for 2018 earnings has remained stable over the past 60 days. In two years’ time, the company’s shares have gained 46.4%.

Oversea-Chinese Banking’s Zacks Consensus Estimate for 2018 earnings has moved 4.3% upward in the past 60 days. Also, share price of the company has increased 27.4% in past two years.

HDFC Bank’s Zacks Consensus Estimate for current-year earnings has been revised 1.5% upward over the past 60 days. Also, the company’s shares have risen nearly 64% in the past two years.

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