RBS posts a profit but still has a long road to follow

RBS today announced a net profit of £9m for the first half of 2010.  Its move to profitability was due to accounting rules and the underlying position for the first half of 2010 was break even.  Graham Spooner, investment adviser at The Share Centre, explains what this means for investors.

"These results show that RBS is on track although a long way from full strength.  The net profit of £9m is an indicator that the bank's five-year plan is taking the company in the right direction.  Recently it also passed the ‘stress test'.  However it is still too early to feel completely positive about the results.

"RBS also announced it is on target to meet Government targets for mortgage and small business lending, although it pointed out that small businesses are repaying loans faster than the bank is granting them.

"The bank still remains cautious about the effect of the global economy on its recovery and the work that remains to be done within the business.  The bank was split into a core business (the high street and investment bank) and a non core business (which includes assets that it wants to sell off) and this division is working well for the bank.  A further challenge will be the changing regulatory environment under the new Government. 

 "RBS is seemingly moving in the right direction with these results and although the five year plan makes sound business sense it still remains a high risk investment.  It is worth noting that the sooner the Government stake can be sold, the sooner the bank can start awarding dividends again. We therefore retain a ‘sell' recommendation on the stock".

"In the wider banking sector Barclays remains our bank of choice for investors looking for growth and improving income within the banking sector.  They did not ask for government assistance during the banking crisis, the recent results announcement showed reasonable profits and it is starting to reward investors with a dividend and as such we list Barclays as a ‘buy'.