Now we know

A collective sigh of relief was uttered by investors in the Royal Bank of Scotland (RBS) after their trading statement on Thursday. Because of the way banks report results in this country it was four months since the last report. During those long four months the financial markets have been in turmoil, Northern Rock almost went bust and the RBS share price fell as much as 30%.

So how much have RBS been affected by the sub-prime meltdown? Not that much it seems. Yes there will be a £1 billion writedown but apart from that it has pretty much been business as usual. EPS will be well above the market consensus, the dividend will keep growing and RBS has benefitted from all the deposits flowing out of Northen Rock into other banks.

The share price surged on Thursday of course but is it still a buy? With the price under 500p the PE is about 7 so it would appear so. The market is more concerned about the banking sector as a whole at the moment so now is a good time to pick up quality banking stocks and wait for sentiment to improve.

It could be a long wait of course but unless we really are on the verge of a big global recession the selling has been overdone.