Shares in Royal Bank of Scotland are now trading at 11% below the price of last month�s rights issue after a bearish note from Cazenove, underscoring its vulnerability to a 1992-style economic slump, sent its stock down again.

Shares in Royal Bank of Scotland are now trading at 11% below the price of last month's rights issue after a bearish note from Cazenove, underscoring its vulnerability to a 1992-style economic slump, sent its stock down again.

Royal Bank closed at 201p, down 5.25p, or 2.6%, on a day when the FTSE-100 gained 1.9% just weeks after the Edinburgh institution raised £12bn at 225p a share.

Yesterday's sell-off was attributed to an "underperform" rating slapped on the stock by Simon Pilkington at Cazenove in large part because he believes the size of its loan book at £176bn leaves Royal Bank more exposed than its domestic competitors to a possible UK economic slowdown.

However, Pilkington also highlighted the knock to earnings that the company could take from selling off assets such as its insurance division and cast doubt on Royal Bank's ability to obtain the synergies it seeks from its integration of Dutch bank ABN Amro, which it bought last year.

Around a quarter of Royal Bank's loan book is in the UK corporate sector and, like HBOS, it has a strong position in the property sector, which is currently seeing a downturn.

"The two Scottish banks have been the major lenders to the property and construction sectors for many years. At £60bn, RBS's loan book is 70% larger than HBOS or more than four times larger than Barclays," the note said.

Pilkington also argues that the bank has made little in the way of impairments, suggesting that this could rise by £2.9bn through to 2010, cutting earnings by 12p a share.

"We expect that over time RBS will experience a similar level of impairment as its peers consistent with history, and therefore proport- ionately it will see a greater rise in impairment as the economic slowdown feeds through," the note said.

In particular, he warned that a weaker economy short of a recession but of equivalent severity to the 1992 slump could knock earnings by a further 54%.

On the company's attempt to sell assets to further bolster its capital position, Pilkington said: "Ultimately, we envisage the disposals of Tesco Personal Finance and RBS Insurance, together with the agreed sale of Angel Trains, to generate a capital gain of close to RBS's target of £4bn, though the weakening econ omy increases the risk of shortfall, in our view."

However, Cazenove reckons the sales will dilute earnings by 11% leaving the bank trading on a 30% higher valuation than its peers.

Pilkington is also concerned about the integration of Dutch bank ABN Amro, which Royal Bank bought last year.

"RBS targets net revenue synergies of 688m by 2010, which are equivalent to 20% of ABN's revenue. Such a target looked ambitious before the liquidity crisis and now appears unobtainable."

Royal Bank declined to comment on the research note yesterday but it has long been flagging the benefits of diversification that the ABN Amro purchase gives it, away from the UK market.

It has also stuck to its overall target of £2bn of synergies from its integration with the Dutch bank.