RBS shares up on APS costs hope

LONDON, Nov 4 (Reuters) - Royal Bank of Scotland (RBS.L: Quote, Profile, Research) shares nudged higher on Wednesday as analysts said it should incur lower costs from its revised participation in the UK government's asset protection scheme (APS), albeit with higher risk exposure.

By 0830 GMT RBS shares were up 3.3 percent at 37.1 pence, after falling 7 percent on Tuesday when it announced revised terms for its participation in the APS in a deal which saw it get more state help but also agree to big asset sales. [ID:nL3540088]

"We see a clear benefit arising from both the significant reduction in cost as well as the now highly accretive issuance of 25.5 billion pounds of B Shares at 50p," said Ian Gordon, analyst at Exane BNP Paribas, in regard to RBS.

He upgraded his rating on RBS to "neutral" from "underperform", with a 40p price target.

Lloyds Banking Group (LLOY.L: Quote, Profile, Research) shares rose 2.1 percent to 89.09p.

Also on Wednesday nationalised rival Northern Rock said its trading performance improved in the third quarter, trends had improved on bad debts and it expects a "significant improvement" in the second half. [ID:nL4672022]

Several analysts said they remained wary on both part-nationalised RBS and Lloyds, however, saying Tuesday's news could have been worse but investors in the banks should be prepared for a long slog.

"Investors should not lose sight of the task ahead. The story is one of disruption, with divestments distracting management and creating upheaval for businesses and employees on the ground," Jonathan Pierce, analyst at Credit Suisse, said in a note.

Probable "political interference" and little chance of a dividend "until at least 2012" were other negatives, he said. (Reporting by Steve Slater; Editing by Greg Mahlich)