A new investment report from Investec suggests that the Royal Bank of Scotland Group plc (NYSE:RBS) (LON:RBS) is oversold on the very slight possibility that Scotland votes for independence from the UK.

UK banks

The September 9th report also upgrades RBS from Sell to Hold, and increases the price target on shares of the UK mega bank from 340 p to 355 p. Key risks noted include legacy conduct issues, continued execution of a major restructuring program and the Scottish independence referendum coming up on September 18th.

Scotland likely to remain in UK

One of the main arguments advanced by Investec in this report is that Scotland is highly likely to remain in the United Kingdom. The Investec analysts refer readers to a prior report rather than repeat earlier argumentation, but do highlight that only one recent poll has showed a “sustained lead” for pro-Unionists. They conclude that it is quite improbable that Scotland will vote to leave the union, especially given the uncertainty regarding the currency to be used by an independent Scotland.

RBS recovery underway

Royal Bank of Scotland Group plc (NYSE:RBS) (LON:RBS) is enjoying a gradual recovery across “core” retail and commercial operations, according to the report. Furthermore, the recent decline in dollar/Sterling foreign exchange rate provides some additional tailwind, and also supports the scale of projected capital uplift from a sale of Citizens shares in the U.S. by year-end 2016.

RBS exceptional assets

However, the Investec analysts also note they believe the increased restructuring spend, ongoing conduct costs and seasonal issues will bring RBS back to slight losses in the second half of 2014 and 2015, with tNAV declining by around 3 p to 373 p by the end of 2015.

tNAV per share

Potential capital problem on the horizon

Rsik-weighted assets

Finally, the report also highlights a looming capital ratio problem for Royal Bank of Scotland Group plc (NYSE:RBS) (LON:RBS). The analysts note that following a 150bps recovery in RBS’ CET1 CRD IV capital ratio to 10.1 % in the first half 2014, their models project growth to an “excessive” 14.0% by the end of 2016, largely due to  RWA/goodwill release given a disposal of Citizens in 2016.