Should you buy Royal Bank of Scotland Group, Lloyds Banking Group plc or Metro Bank plc after this week's results?
More one-off costs at RBS
RBS reported an adjusted quarterly profit of £1.3bn this morning, although a combination of one-off costs, including misconduct fines, restructuring cost and tax resulted in a loss of £469m, nearly double market predictions.
The report contained more bad news for shareholders, with the bank confirming that it will likely miss its deadline to sell three hundred branches under the Williams & Glynn brand by the end of 2017, which it was ordered to do by the EU as part of the bail out provided in the financial crisis. The consequences of missing this deadline are currently unknown - and if there's one thing the market doesn't like its uncertainty.
The bank's cost-to-income ratio -- a measurement of how much it costs to generate each pound of revenue -- was poor at 88%, a far cry from the target of 50%.
The adjusted number comes in at 58%, although I find it hard to value RBS using its adjusted figures. It has booked enough "one-off" charges that I consider them a cost of doing business. With so much uncertainty hanging over the bank, I'm not sure I'd feel comfortable investing.
Dividends incoming at Lloyds?
Lloyds was forced to put aside a further £1bn to cover expected PPI settlements this quarter, because the deadline for people to claim has been extended to 2019. Thankfully, the bank expects this to be the last large lump sum it will dedicate to the issue. Maybe that means our TV's will be free of those awful adverts soon, too.
Lloyd's expects its cost-to-income ratio for the year to be below last year's 49.3%, an impressive result to be sure, especially when compared with RBS.
The company trades on less than eight times predicted earnings for this year, so it seems much of the above uncertainty is baked into the share price. Combine this with a forecast 6% yield next year and Lloyds starts to look attractive.
Metro Bank Opens Record New Accounts
Metro Bank came ever so close to recording a maiden profit this quarter, and did so on an underlying basis. Once the cost of listing is ignored (and that is a fair one-off cost to ignore, in my view) the bank swings from a loss of £0.24m to an underlying profit of £0.6m.
Deposits in the quarter jumped 66% to £7.3bn, while lending increased to £5.2bn, a 73% gain.
Impressively, growth seems to picking up too. The company opened a record 68,000 new customer accounts in the quarter, for a total of 848,000.
In summary, I'd avoid RBS after the increased uncertainty in its results, although both Lloyds and Metro look attractive, the former for income and the latter for growth.
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Zach Coffell has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.