Shredded Sir Fred Goodwin may feel as though, on entering the aircraft, heâs been asked to turn left when he was very much expecting to turn right. From Morgan Stanleyâs UK bank watcher Michael Helsby to clients on Wednesday: We double upgrade RBS to Overweight from UW relative to UK banks with 24% implied upside to our target of 280p (up 8%), as current valuations suggest that the risk of remaining UW is high. Notwithstanding the fact that the jumbo RBS cash call does not close until Friday, Mr Helsby reckons this is a done deal and that the risks amongst UK banks lie elsewhere. Capital has been raised, there is potential for future disposals, and we think risks are higher at HSBC (UW, price 856p) and Lloyds TSB (UW, 388.75p). Our UW on RBS was built on concerns in the US, exposure to FICC, capital, dividends and the UK macro picture. Many of these are now resolved by the rights issue, alongside prudent marks in RBSâs structured credit book and extra US bad debt reserves, leaving only a UK recession and ABN Amro integration as major concerns. We think RBS is more diversified than it gets credit for, risk to downside is greatly reduced, and add it to our Banksâ Portfolio. Shares in RBS added 5p to 250p during brisk early trade on Wednesday. http://ftalphaville.ft.com/blog/2008/06/04/13545/a-double-up-grade-for-rbs/ risk to the downside is reduced...funnny to read after 300 bn subprime writedowns industrywide...
Diversification doesn't "work" when everything becomes correlated. They have to re-learn last year's lesson.