UK - Royal Bank of Scotland's acquisition of the US bank Charter One Financial makes "business and financial sense" for investors, according to Isis Asset Management.
Isis UK Prime and UK Equity funds manager Mike Felton welcomed the move having been assured by RBS chief executive Fred Goodwin that the £5.8bn deal would go ahead.
Felton said the acquisition would remove some of the uncertainty hanging over RBS’s share price, and claimed that investors would appreciate that Charter One was a “quality bank on a cheap rating”.
He said: “While high-profile deals like this often cause a knee-jerk reaction in the share price, we see any significant weakness as a buying opportunity.”
RBS is a 5% holding in the Isis UK Prime fund, and Felton predicts that the combined outfit will generate synergies of £407m over the next three years. But Cavendish Asset Management senior fund manager Paul Mumford warned the acquisition “looks expensive for RBS” and could cost shareholders.
He said: “RBS has paid 15 times earnings for Charter One, while it trades on a priced earnings ratio of less than 10 itself. There are parallels with HSBC’s expansion days, where the stock price festered for months following large share issues, and I would expect the RBS stock price to similarly underperform in the short-term.”
Mumford warned that US acquisitions by UK companies were “not always that successful” and some risks might have to be factored in when considering the RBS deal.
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