Merrill Lynch has produced an upbeat report on Royal Bank of Scotland which now owns Ulster Bank. The broker, which is also RBS's stockbrokers, says that following a trading update from the group, profits at the bank should be higher than expected. It has upgraded its earnings forecasts for 2001 and 2002 by 1.6 per cent.

Some sectors of the stock market have been focused on the outlook for credit quality as the critical factor for banks in the immediate future. Merrill acknowledges that bankers will have to be more circumspect this year but suggests fears of a systematic downturn in credit quality is misplaced. It says RBS is undervalued at its current share price. It also highlights its defensive qualities in terms of its exposure to any downturn.