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The Royal Bank of Scotland Group plc Message Board

  • cdh99 cdh99 Jan 22, 2009 11:34 AM Flag

    What PFD market values tell us

    The continuing decline in the market values of the preferreds tell us that the market place believes that these preferreds are going to be no more value than the common.

    I can't see the UK government giving preferred holders a gift horse that would restore much value in these preferreds.

    I wish this was not true - I am a holder of two preferreds.

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    • What is this talk of turning prefs. into common? I have looked through a prospectus on them and find no provision for turning prefs into common. May with a vote of shareholders (prefs have no vote) who wood vote that. Could common vote to dienfrachise the prefs. without just compensation?

    • With UK Gov't converting their PFD to common they have given a clear indication that this Bank is too big and too important to fail. The conversion also saves RBS a considerable amount of money each year which they can use to pay the publickly owner Pfd. The market has called this one wrong as certain financial institutions are too important to some economies to be allowed to disappear.

      • 1 Reply to denoboy1
      • If they force us to convert our preferred shares to common shares they may be required to calculate based on par value of $25.00/share= approx. L18.00/share. The common is trading at 12.2 pence.. so we should get 147 shares of the London equivalent..and that should translate into 7.35 shares of the USA ADR'S (RBS)...
        How do you like them apples????????? (20 London shares= 1 ADR). We should get our $25.00's worth.

    • Based on the current prices..... The market has already priced in that the Preferred dividends will not be paid (Almost a 50% yield).... and even at these depressed levels.... the market price indicates that RBS will go insolvent....

      I don't believe that RBS will fail.... so if that is true, then these are great value.... but somone thinks otherwise......

      IF the bank doesn't fail...... but suspends dividends....... the preferred still have great value......

      One option being floated is that Preferreds would be converted to Common........ if they follow the Gov pereferred conversion plan (101% of face value) that means for each share of Preferred you would purchase $25.25 worth of Common......... (all depending on conversion pricing) But at today's common price, you would get 7 share of common for each preferred....

      But since common is trading above the Preferred prices....... I would think this would be too good to be true........

      Maybe the pre-reverse-split ratio?

      Anyway....... I have buy orders in...... Looking for a very low price to average down.

      Good luck

      • 4 Replies to robbhyland
      • If they do convert, would there not be a run to sell the recently converted pref? Why would one hold on to the common that paid you back full par and now gives you no interest?

        I cant imagine anyone who holds pref that would not sell in that event.

      • robbhyland, you should realize that the price per share of the common, vis-a-vis the preferred prices, is a meaningless statistic that I see getting thrown around on this message board as some sort of evidence that the preferreds are really cheap.

        They ARE really cheap, but not because they are priced at or under the common PPS. The price of common is not as important as the market cap of the company, in relation to its NAV or book value. Analysts peg NAV at about 35 pence "stress-tested", on a proforma share count of 56 billion shares. That's a GBP 20 billion NAV, or about $27 billion. THAT is what you should focus on, robbhyland, not price per share.

        Given the estimate for stress-tested NAV is about $27 billion, and it could be as high as 58 pence (without stress-testing) according to Citi research, or $45 billion, we have considerable "cushion" before the real value of the preferreds would be compromised. In other words, as long as there is REAL value for the common, the preferreds are worth some PV discount to their $25 face values, and (normalized) they are worth face value.

        You would have to see $27 to $45 billion in future writedowns and operating losses before the NAV would be erased. Given that the company said 2008 had GBP 7 to 8 billion of op. losses (in addition to the extraordinary and non-repeatable ABN non-cash charge), the company could suffer through more than three more years that are EACH just as costly in losses as 2008, and STILL have NAV left over.

        THIS is why preferreds are interesting here. No need to obfuscate that with silly retail investor talk about pps being at or under the common ADR pps.

      • That rolling of the Government-owned preferred to common was a gift to the Bank. It will not happen with the regular preferred; indeed it cannot happen except under receivership.

        The UK is doing everything it can to avoid nationalization or a bank collapse, and they will continue to do so.

        Finally, over half of the loss was a write-down of goodwill. This impacts the balance sheet (value of common), but is insignificant.


      • Reminds me of when Rolls was bailed out.

    • It is not only the pref. falling because of the banks failures. The pound has dropped by 30+%. This makes the money that the government put into RBS valued lower. This has as much to do with the pref prices as the uncertainty. If the pound can stabilize the prefs will gain. That probably won't happen untill the economy improves. Bought more this AM and holding. As long as RBS is making money on their normal operations there is no reason not to pay the div. Most of the losses to be reported are goodwill paper loses. Write them all off. There is no such thing as goodwill anyway.

    • Well, it is not true. I always wonder when I see posts like yours if you are working for the entity that appears to be framing the stock or preferred for accumulation.

      Now, take the preferred N's for instance. 40 million outstanding, and in the last 3 days have traded about a million shares. 2.5 percent. And probably half of that 2.5 percent is simply trading -- usually it is above 60 percent for preferreds.

      If you think the Goverment is going to trash the 39.5 million who have held just because 500K got in cheap -- well, that is interesting thinking.

      If they hold the price here, then I'm expecting the Bank to let it be known in the next week or so that the divi on preferred HAS NOT been suspended and they do not expect to suspend it. I am saying this based the Bank affirming this last Fall post the concern being raised.



      • 1 Reply to lukijack
      • I am only a retired investor trying to determine what is going on with the values of these preferreds. I have a fair amount of various bank preferreds, mainly US stocks, that provide me with good dividends for my retirement years.

        My concern is that UK will not be able to avoid nationalizing RBS. My experience in the market, which is limited, is that the market is right more times than it is wrong.

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