The Royal Bank of Scotland Group plc (NYSE:RBS) (LON:RBS) has been downgraded from hold to sell by analysts at Deutsche Bank. The downgrade comes after CEO Stephen Hester announced that he will leave the bank at the end of the year. He said he could not commit to taking the bank through the privatization process as it transitions out of government ownership.

Royal Bank of Scotland

Reasons For The Downgrade Of RBS

Today Deutsche Bank analysts Jason Napier and David Lock issued a report to investors which detailed their downgrade of The Royal Bank of Scotland Group plc (NYSE:RBS) (LON:RBS). They believe Hester did an excellent job in the restructure of the bank, and they said an interview posted on RBS’ website implies that it was the board’s decision to push Hester out. They point to this comment from Hester: “Of course I’d like to have stayed.”

The analysts believe the bank will continue on with current strategy, which includes the planned 35 percent capital reduction in its i-bank. Another part of the plan is efforts to “float a minority stake in US business citizens” by the end of 2015. This will take care of the capital adequacy stress test requirements called for by the Financial Policy Committee of the Bank of England.

Reduced Risks Of Selling Royal Bank Of Scotland Shares

Analysts at Deutsche Banks said there have been some risks associated with selling shares of The Royal Bank of Scotland Group plc (NYSE:RBS) (LON:RBS) recently, particularly because of the possibility of a public share distribution, which they believe would cause a free float induced squeeze. Their other concern about selling shares of RBS was “a decent restructuring announcement from an ever-credible Hester.”

They don’t believe this will happen in light of Wednesday’s announcement. They predict that the Banking Standards Committee will release its final report on Friday. They expect that report to recommend another round of restructuring based on good and bad bank assets, as well as lower leverage ratios than what Basel 3 currently requires. In their view, neither of these possible announcements is positive.

At the stock’s current valuation, they believe it is “too fully valued.” They set their price target at £275 per share on The Royal Bank of Scotland Group plc (NYSE:RBS) (LON:RBS). The bank’s stock plunged overnight after the news of Hester’s leaving. As of this writing, it was down 4 percent at the London Stock Exchange.