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Here’s what I’d do about the RBS share price and its 11% dividend yield

Rupert Hargreaves — Sun, 03 Nov 2019 10:03:35 +0000

According to City analyst forecasts, at the time of writing, investors will receive dividends worth 11% of the RBS (LSE: RBS) share price for 2019. If the company hits this target, the stock will support one of the highest dividend yields in the FTSE 100.

This is a drastic turnaround from where the bank was around 10 years ago. RBS was brought to its knees by the financial crisis, and it has taken the group nearly a decade to recover.

The company was forced to sell hundreds of billions of pounds of assets as part of its recovery and, today, it’s a much smaller business than it was before the crisis. However, a smaller, leaner RBS is now much easier to understand, and I think it has much brighter long-term prospects.

A streamlined bank

RBS used to be one of the world’s largest investment banks but, as part of its recovery, it’s slimmed down its trading division to focus on more traditional banking activities, such as mortgages and credit cards.

These businesses are less profitable but more predictable. For example, the remaining investment banking business, which operates under the NatWest Markets brand, reported an operating loss of £193m in the third quarter. The loss, coupled with an additional £900m charge from the PPI scandal, pushed RBS to a pre-tax loss of £8m for the quarter, compared with a profit of £961m in the same period last year.

Nonetheless, looking forward, it seems as if the outlook for the bank is bright. Now the deadline for making historic PPI claims has passed, RBS should be able to reveal its full post-crisis potential. City analysts had been expecting the lender to report a total net profit of £3.2bn this year, but it now looks as if RBS won’t be able to meet this target. Still, 2020’s current goal of £3.1bn in net income appears possible at this stage.

Income champion

With profits booming, I see no reason why RBS cannot maintain its dividend crown. With profits growing, I think management will return the majority of the bank’s income to shareholders, rather than using these funds to try and turbocharge growth. That was the mistake RBS made in the years before the financial crisis, and we all know how that worked out. I reckon the lender’s new CEO, Alison Rose, will be keen not to repeat the same mistakes.

As well as the market-beating dividend yield, shares in the bank also trade at a low valuation of just 8.6 times forward earnings, and a price to tangible book value of 0.7.

While there are risks to growth on the horizon, such as Brexit and the US-China trade war, I think this low valuation more than compensates investors for the potential uncertainty. And with that being the case, I believe the RBS share price could be an attractive income investment at current levels.

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Rupert Hargreaves owns no share mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Could this looming threat destroy RBS and every other FTSE 100 bank?

Harvey Jones — Sat, 26 Oct 2019 08:18:39 +0000

For the last 12 years, the banks have lurched from one crisis to another. None more so than Royal Bank of Scotland (LSE: RBS), which taxpayers were forced to bail out to the tune of £45bn. There could be more trouble ahead, so watch out.

It’s an absolute scandal

The sector has been rocked by a host of lesser scandals since the financial crisis, including PPI, Libor-fixing, money-laundering and much more. The recovery process has been slow and the losses have continued to mount. Last year, chairman Sir Howard Davies said RBS had lost £130bn over the decade after it was rescued.

These are huge, especially when set against its market-cap of £29bn. Loyal investors have also suffered, with the RBS share price a third lower than it was five years ago. At least it now pays a dividend, currently yielding 2.3%, with the promise of more to come. So would I invest in it now?

Many will be tempted by the 16% jump in its share price over the last month, as investors celebrated the final deadline on PPI claims and the appointment of new CEO Alison Rose. And a potential Brexit resolution.

That’s a massive yield

Short-term forecasts are good, with City analysts anticipating a 90% leap in earnings this year, which could lift the yield to 10.4%. That’s forecast to fall to 5.7% in 2020, but still more than respectable. The bank looks cheap too, trading at just 9.5 times forward earnings, with a price-to-book ratio of just 0.6 (where 1 = fair value).

Before you part with your money, a word of warning. Banks like RBS are on the frontline when the global economy slows. Their personal and business borrowers are more likely to default, while continued low interest rates squeeze net lending margins.

There is a longer-term worry. I’ve just read a report by Vincent Vinatier, manager of the AXA WF Framlington Fintech Fund, who’s warning that global banks must spend hundreds of billions on IT systems to compete in the digital world.

Deadly disruption

Globally, they must lavish a “mind-boggling” sum of nearly $300bn by 2021, and the costs will continue to rack up as they fight off the challenge from online and app-based start-ups.

Vinatier warns that too many established banks have clunky systems, and that upgrading them is complex and costs typically overrun. The big banks also have to fund “a move to the cloud and constant investment in cyber-security.”

He wasn’t specifically talking about RBS, but it will be hard for such a major player to compete against nimble new fintech operations, which customers can quickly download onto their phones to see how they’re getting along. For now, they’ve focused on services such as savings rates and currency transfers, but that’s steadily broadening.

Warren Buffett favours stocks with wide and sustainable “economic moats,” protecting them from competition, and the banks have long been protected by their scale, and customer inertia. As the digital disruptors put the retail banking model under siege, that moat is slowly evaporating. You have been warned.

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Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Why I’d dump the Metro Bank share price and buy the RBS share price right now

Rupert Hargreaves — Sun, 06 Oct 2019 12:31:21 +0000

Shares in Metro Bank (LSE: MTRO), one of the UK’s leading challenger banks, have fallen around 90% from their all-time high over the past 18 months.

Following this decline, the stock looks attractive as a value investment. However, while the shares might seem cheap at first glance, it is essential to remember why investors have turned their backs on the business in the first place.

Struggling business

At the beginning of 2018, Metro was flying high. The bank was meeting or exceeding its growth objectives, and it looked as if the group’s growth was unstoppable.

For the first quarter of 2018, Metro reported a 41% year-on-year increase in customer deposits, lending growth of 69% and an underlying profit before tax of £10m for the quarter.

The firm’s growth story began to unravel in the first half of 2018. Soon after commenting that the group had plenty of capital to fulfil its expansion plans, management announced a £9m placing of new shares representing approximately 10% of the company’s issued share capital to bolster its balance sheet at the end of July.

Then in the third quarter, growth started to slow. Deposit growth halved in Q3 2018.

Metro’s problems only got worse in the first half of 2019. The company revealed that it had miscalculated the strength of its balance sheet and was forced to ask shareholders for £350m of extra capital in May. The revelation shocked investors and customers.

A better buy

Since May, Metro has been working hard to try to restore investor and customer confidence. Nevertheless, it’s clear to me that this bank will never be able to rebuild the sort of reputation it had at the beginning of 2018.

And with this being the case, I think it would be wise for investors to avoid the challenger bank altogether and invest in Royal Bank of Scotland (LSE: RBS) instead.

You see, while Metro looks cheap, trading at a price-to-tangible-book-value of just 0.3, RBS is just as undervalued. Shares in the bank are currently dealing at a price-to-tangible-book-value of 0.6 and RBS has other attractive qualities, such as dividends.

For 2019, City analysts believe that the bank will return a total of 24p per share, giving a dividend yield of 12.2% on the current price. Analysts are expecting a total dividend of 16.7p for 2020, a potential dividend yield of 8.6%.

Rising profits

What’s more, unlike Metro, RBS is highly profitable. Analysts believe the bank will report a net income of £3.4bn for 2019. That puts the stock on a forward P/E of 7.6.

Of course, RBS does also have its own problems. Brexit uncertainty, regular IT problems and a low return on equity are all issues for the bank, but compared to Metro, it looks to me to be the much better bet. The group’s balance sheet is much stronger, it is much more profitable, and RBS is returning capital to shareholders.

Overall, if you are looking for an undervalued banking stock to add to your portfolio today, I reckon RBS would be a better buy than Metro. Even though Metro looks deeply undervalued, it’s questionable if the bank can ever return to its former glory.

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Could the RBS share price double your money?

Rupert Hargreaves — Wed, 11 Sep 2019 09:20:10 +0000

At the time of writing, the RBS (LSE: RBS) share price is dealing at a price-to-book ratio of 0.5.

In theory, this implies that the stock could rise by 100% from current levels because most profitable businesses deserve to trade at or above book value, i.e. the replacement cost of the entire undertaking.

But what are the chances of this happening? Today I’m going to try and discover if the RBS share price can double your money or if it is worth looking elsewhere for capital gains.

Book value

RBS’s reported book value is just under £46bn compared to the bank’s current market capitalisation of £24bn. These numbers imply that it would be better to buy the group, break it up and return the capital to shareholders rather than trying to run the business.

This isn’t going to happen any time soon, but I think the example clearly illustrates how undervalued RBS appears to be at this point.

That being said, the reason why it is so difficult to place a value on banks in general is because we don’t really know what is on their balance sheets. Like all other financial institutions, RBS is required to declare any loans forwarded to customers as well as deposits and other assets. But as many bank shareholders found out in 2008, it is impossible to tell precisely where the skeletons are lurking based on the limited figures the firms publish for investors.

With this in mind, it makes sense that the market would place something of an uncertainty discount on bank shares.

From this perspective, RBS’s valuation does not look too out of whack, although I think a discount of 50% to book value is quite high. A discount of between 30% and 20% might be more appropriate. Most of the bank’s peers are currently trading at a price-to-book ratio of around 0.9, implying a discount of approximately 10%.

The bottom line

Considering all of the above, I think it is unlikely that the RBS share price could double your money.

While the bank has made tremendous progress over the past 10 years, rebuilding its balance sheet. There is still a high level of uncertainty around the business, even though profits have recovered to more than £3bn.

But that doesn’t mean shareholders will be left out of pocket. Last year, RBS paid its first dividend since the financial crisis. At the time of writing, analysts are expecting it to distribute a total of 24.4p per share this year, giving a dividend yield of 12.3% on the current price. A dividend of 16p is expected in 2020, offering a yield of 8.1% on the current share price.

So, as an income stock, RBS certainly looks attractive right now, but it’s difficult to say if capital growth is also on the cards.

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Can the RBS share price ever return to 400p?

Rupert Hargreaves — Sun, 11 Aug 2019 09:30:03 +0000

RBS (LSE: RBS) seems to be one of the most hated stocks on the London market. No matter how impressive the company’s results, the path of least resistance for the shares always seems to be down.

The bank’s latest results release is a great example. The group announced its best figures since the financial crisis and a special dividend on top of its regular distribution. However, rather than concentrating on the positives, the market latched onto management’s downbeat forward guidance, which suggested the bank will miss its long term profitability targets due to economic uncertainty.

Underperformance

Following the post results decline, shares in RBS are now off 1% for the year. Year-to-date, shares in the bank are underperforming the FTSE 100 by around 10%, including dividends.

Over the past five years, the stock has underperformed the index by around 14% per annum, and over the past decade, by nearly 20% per annum. Shares in RBS are currently trading at their lowest level in three years.

Looking at this performance, you might assume the bank’s outlook has deteriorated substantially over the past five years. But that’s just not the case. RBS is stronger today than it has been at any other point since the financial crisis.

Indeed, since 2008, the bank has disposed of hundreds of billions of dollars of toxic assets, reinforced its balance sheet and consolidated around its core UK market. RBS’s core equity tier 1 capital ratio — a measure of bank balance sheet strength — was 16% of the end of June, several percentage points above its required minimum.

The robust balance sheet and surging profits mean management has plenty of headroom to return cash to investors. The recently announced interim ordinary dividend of 2p and a special dividend of 12p is evidence of this. These two distributions represent £1.7bn being returned to shareholders in total.

Stronger, but smaller

RBS is stronger today than it was 10 years ago, but it’s also smaller. The group’s tangible net asset value per share is 290p, down substantially from the pre-crisis peak. Profitable banks deserve to trade at, or slightly above, tangible book value, which implies shares in RBS are worth around 290p today, 45% above current levels.

So, the RBS share price appears to be undervalued, but it’s unlikely it will trade back up to 400p anytime soon based on the current figures. That said, if the bank continues to return excess capital to investors via dividends, there’s a good chance shareholders could receive the difference between this 400p price target and the tangible book value in dividends.

The recently announced 14p total distribution is a big step towards this target. With that in mind, if you are looking for an FTSE 100 income stock to include in your portfolio today, it might be worth considering RBS as an investment.

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Barclays and Royal Bank of Scotland: two FTSE 100 horrors that could sink in August?

Royston Wild — Sun, 14 Jul 2019 12:00:35 +0000

Are there any scarier shares on the FTSE 100 to buy today than Royal Bank of Scotland (LSE: RBS) and Barclays (LSE: BARC)?

There’s plenty of contenders out there. Sainsbury’s and Centrica, for instance, firms which continue to lose customers to their rivals at a rate of knots. Imperial Brands and British American Tobacco becase of the shocking demand decline in the cigarette market. How about shopping centre operators Land Securities and British Land which are being battered by falling consumer confidence and the e-commerce explosion?

You’re bound to have your own opinion, but I don’t think it can be denied that Barclays and RBS are in one heck of a pickle right now, as reflected by their chubby share price falls over the past year. And I reckon the banks can expect to plummet again at the beginning of next month.

I see the bad loans rising

First-half results from Barclays are slated for release on 1 August , and corresponding financials from RBS are expected the day after. If the last set of results from both are anything to go by then shareholders should probably find something to bite down on.

It’s clear uncertainty over the UK’s future relationship with the European Union is really starting to have an impact on the domestic economy now. Business is peering over the Brexit precipice and it doesn’t like what it sees, causing consumer confidence to sink and cross-sector activity to slump.

This was abundantly apparent in all of the banks’ first-quarter updates, releases in which RBS reported an 8% revenues drop and Barclays printed a 2% reversal. More worryingly for the former though, was the jaw-dropping 64% leap in bad loans in the period, a figure that beat its blue-chip rival’s own 56% impairment increase by a nose.

Economic conditions have worsened since then, as illustrated by key industry gauges like services PMI stagnating, manufacturing activity sinking at the fastest rate for years, and some retail sales surveys plunging to all-time lows. And this means August’s first-half releases from the banking giants are likely to be even worse.

Will things get even worse?

Even before the problems surrounding European Union withdrawal materialised, profits growth over at Barclays et al was being hampered despite robust economic conditions in the UK. Why? An environment of low interest rates, that’s why.

But with the prospect of a no-deal Brexit comes the possibility of benchmark rates going even lower. Bank of England official Gertjan Vlieghe told Reuters late last week that he would vote to hack them to “close to 0%” in such a scenario.

So forget about Barclays’s and RBS’s rock-bottom P/E ratios of below 10 times. I say the tough trading conditions of right now may, in retrospect, look like a cakewalk compared to what happens if a disorderly Brexit does indeed transpire.

They may be cheap but they’re cheap for a reason. And I fully expect their share prices to keep sliding in the near term and beyond.

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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended Barclays, British Land Co, Imperial Brands, and Landsec. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Is the RBS share price a FTSE 100 steal or disaster waiting to happen?

Rupert Hargreaves — Sun, 07 Jul 2019 07:30:16 +0000

A quick glance at the RBS (LSE: RBS) share price will tell you the stock is cheap. Indeed, at the time of writing, my research tells me shares in this bank are changing hands at a price to tangible book value of just 0.7 and a forward P/E of 7.7. Based on analyst forecasts, the stock is also offering a forward dividend yield of 6.6%.

However, while these metrics might look attractive, this isn’t the first time the RBS share price has appeared undervalued. Indeed, for the past five years, the stock has looked attractive from various perspectives even though it has been in the midst of a brutal restructuring programme.

So the question I’m going to try and answer today is, can investors finally trust RBS, does the share price offer value at current levels, or is it a value trap?

Value trap red flags

There’s no set template we can use to try and determine whether or not a stock is a value trap, but there are several red flags which can provide an indication.

For example, value traps tend to have a high level of debt and low levels of cash conversion. Bad capital allocation decisions, such as value-destroying mergers and unsustainable dividends, are also hallmarks.

The way I see it, RBS doesn’t tick any of these boxes. Several years ago I would have said the company does have a high level of debt and low levels of cash conversion. But in recent years, the bank’s balance sheet has improved substantially, and regulators have been so impressed with its cash generation and asset quality they’ve allowed management to recommence dividend payouts.

The bank hasn’t pursued any expensive acquisitions either, concentrating solely on getting its house in order, trying to make up for past mistakes.

All of the above seems to indicate RBS is not a value trap. Of course, we can never be 100% sure, but none of the most common warning signs are there.

Time to buy?

As there are no clear red flags to tell me otherwise, I think the RBS share price could be an FTSE 100 bargain at current levels. Having said that, I think it could be some time before the market regains trust in this bank.

Even though RBS has come a long way since its state bailout during the midst of the financial crisis, the group’s past still haunts it, and I think it will continue to do for some time.

With that being the case, I think this is an opportunity only suitable for the most patient investors who are willing to sit back and watch RBS’s recovery continue. If the bank can continue to report impressive earnings growth for the next few years and rewards investors with fat dividends, the stock price should improve steadily from current levels.

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This is why I’d avoid FTSE 100 stock RBS and buy GlaxoSmithKline instead

Royston Wild — Mon, 29 Apr 2019 07:19:53 +0000

I’ve spoken in depth about the risks a no-deal disorderly Brexit represents to UK-focussed banks like Royal Bank of Scotland Group (LSE: RBS). These are firms which — as the bank’s first-quarter financials showed last week — are already buckling under the strain created by uncertainty over our European Union exit.

I’m not going to touch upon this again but will, instead, look at another damaging consequence of the Brexit saga and its impact on the domestic economy. That’s flat interest rates. Profits growth at RBS et al had been held back by doveish Bank of England monetary policy long before the referendum of summer 2016. By the looks of things, we shouldn’t expect rates to be hiked any time soon.

I don’t rate it

That’s certainly the view of the National Institute of Economic and Social Research, which isn’t anticipating any upward movement in the BoE’s benchmark rate until August 2020 at the earliest. It’s just a couple of months since the think tank predicted an increase this August and I wouldn’t be surprised, in the current political and economic climate, to see its most recent prediction kicked further down the road as 2019 progresses either.

The medium-term profits outlook for RBS is far from assured then, and the planned departure of chief executive Ross McEwan within the next 12 months adds another big question mark over the bank’s direction in the years ahead.

There’s simply too many obstacles that the FTSE 100 firm has to tackle and which could derail City forecasts of solid earnings growth this year and next. For this reason, I’m happy to ignore RBS’s cheapness, as illustrated by its forward P/E multiple of 9.1 times, as well as its huge dividend yield of 4.9%, and shop for other shares instead.

A better buy

Indeed, I’d much rather splash the cash on GlaxoSmithKline (LSE: GSK). Unlike RBS, the pharmaceuticals giant’s bottom line isn’t at the mercy of Brexit and its consequences in the months and years ahead, an advantage which reflects the essential nature of its products which remain in demand irrespective of the broader economic landscape. In fact, it could be argued that Britain’s ageing population means that its sales outlook on these shores is actually rather bright.

Not that any fall in British sales in the weeks, months or years ahead would impact Glaxo to a seismic degree, given the small percentage of worldwide sales which revenues generated here represent.

In fact, I’m becoming more and more bullish over the business because of the work it’s undertaken to bulk up its product pipeline in recent years and the excellent work its lab teams continues to deliver. Just this month, the US Food and Drug Administration signed off on the company’s Dovato treatment in a move that strengthens considerably its portfolio of leading HIV-battling drugs.

As I type, this Footsie firm boasts a large 5.2% dividend yield and is pretty cheap relative to its earnings prospects too, highlighted by its forward P/E ratio of 14.1 times. If you’re looking for a brilliant blue-chip to buy today, I reckon Glaxo is one to go hunting for.

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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended GlaxoSmithKline. The Motley Fool UK has recommended Barclays. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

The RBS share price: Is now the time to buy?

Rupert Hargreaves — Sun, 28 Apr 2019 11:00:18 +0000

Over the past few months, the RBS (LSE: RBS) share price has taken off. Since the beginning of the year, the stock is up 19.1%, excluding dividends, compared to a performance of 11.2% for the FTSE 100 over the same time frame.

Unfortunately, this excellent performance doesn’t go back that far. The stock is still underperforming the index on a one, two, and five-year time horizons. The question is, could this be about to change?

Transformational year

As I have written before, I think 2019 could be a transformational year for the RBS share price. For the past decade, the group has been struggling to return to profitability, a struggle that hasn’t been helped by a series of lawsuits that have been levelled against the bank, due to its role in the financial crisis.

The good news is, it now looks as if RBS has put the bulk of these issues behind it. Management reached an agreement with the US Department of Justice to settle the last major financial crisis-era lawsuit outstanding last year and, earlier this year, the bank reported its second straight year of profit since the 2008 state bailout. The group earned a profit of £1.6bn for 2018 on operating profits of £3.4bn.

These developments have allowed management to reinstate the company’s dividend. For the first time since the financial crisis, last year shareholders received a distribution amounting to 5.5p per share, giving a dividend yield of roughly 2.1%.

And the City is expecting more of the same in 2019. Analysts believe the bank will pay out 13.4 p to shareholders this year, giving a potential dividend yield of 5.2%.

At the same time, the City has pencilled in earnings per share of 27.1p for 2019 on a net profit of £3.3bn. And it looks as if the group is on track to meet this figure. At the end of last week, RBS reported £707m of attributable profit for the first quarter of 2019.

Undervalued

Despite RBS’s improving profitability, the stock still looks cheap. At the time of writing, shares in RBS are dealing at a price to tangible book value of just 0.8, around 30% below the financial sector industry average of 1.1.

While I think it’s reasonable to say the RBS share price deserved to trade at a discount to the rest of the sector during its recovery process, now that growth has returned, I would expect the shares to command a higher valuation.

That’s why I reckon now could be the time to buy the RBS share price. Fundamentally, the business is strong, earnings are growing, and management is returning a healthy amount of cash to investors. However, the share price doesn’t seem to reflect this growth.

I think it’s only going to be a matter of time before the market wakes up to the opportunity here. When it does, there could be substantial returns on the cards for investors who are willing to buy into this long term opportunity today. There’s also that 5.2% dividend yield on offer while you wait.

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3 reasons why I’m avoiding FTSE 100 stocks Lloyds, Barclays and RBS like the plague

Royston Wild — Wed, 03 Apr 2019 13:28:30 +0000

Thinking of splashing the cash on Lloyds (LSE: LLOY), RBS (LSE: RBS) or Barclays (LSE: BARC)? Here are three reasons why I believe all three blue-chips are best left off your shopping list.

Brexit bothers

It’s impossible to discuss the fortunes of the FTSE 100’s UK-focussed banks without mentioning Brexit and how this will affect their profit outlooks for the near-term and beyond.

Things are changing by the hour in Westminster. But as I type, the chances of an economically-ruinous no-deal withdrawal occurring on April 12 are growing. It’s a scenario that’s viewed with increasing fear on both sides of the English Channel.

Following the failure of his indicative votes idea to break the House of Commons stalemate in recent sessions, Tory backbencher Oliver Letwin has reportedly said that exiting the European bloc without a deal was “90% likely.” Theresa May’s pledge to meet the Labour hierarchy for talks on EU withdrawal since then has breathed some life into hopes of a deal, though the issue of realpolitik means the possibility of a breakthrough still looks fragile.

Britain’s banks are hurriedly preparing for a no-deal withdrawal, and RBS took steps in December to switch £13bn worth of assets to the Netherlands to reduce the impact of a disorderly exit. These vast sums perfectly illustrate the fears the sector has over what Brexit has in store.

Challengers rising

The Footsie’s banks aren’t just a slave to the economic and political landscape in the UK though. The impact of Brexit now and in the future on Lloyds, RBS and Barclays may command the most media headlines right now, but the rise and rise of the challenger banks is also having a devastating effect upon these big-caps’ top lines.

To illustrate the point, latest data from UK Finance showed while gross residential mortgage lending rose 2.5% in February to £19.1bn, the number of approvals issued by the high street’s major banks dropped 2.2% year-on-year.

The situation is particularly grave for Lloyds given how important the mortgage market is to its own operations. In its full-year results, the Black Horse bank cited the impact of “ongoing mortgage pricing pressure” in hampering revenues growth in 2018, and announced its open mortgage book balance remained stagnant on an annual basis at £267bn.

This shows the intensive — and increasing — competition the big banks are facing in the mortgages arena, just one retail banking area in which the dominance of the traditional lenders is being undermined.

PPI problems

As well as the prospect of sinking revenues and spiking bad loans as 2019 progresses, these FTSE 100 firms also face a colossal jump in PPI-related financial penalties as the August 29 claims deadline approaches.

Fresh data from the Financial Conduct Authority revealed the crushing effect this is having on the banking sector, with payouts of £334m forked out in January versus £261.3m in the previous month. Given their uncertain profits pictures and, in the case of Barclays and RBS at least, their wafer-thin balance sheets, the prospect of mounting misconduct bills casts doubt on their ability to pay out big dividends this year and beyond too.

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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended Barclays and Lloyds Banking Group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.