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The Royal Bank of Scotland Group plc Message Board

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  • rexobXIP rexobXIP Apr 3, 2009 1:32 PM Flag

    Preferreds trading very level

    Still don't understand this. Unless RBS is fully nationalized and common wiped out, these have to repay at par... and in fact these are now ahead of the UK government recouping any of its investment which is all in common (except for the hybrid notes for the insurance scheme which also rank below -- or at best equal to -- the preferreds. So how come Moody's downgrades now? Makes no sense.

    But then, it makes no sense for the diluted common to go up, while the safer-today-than-yesterday preferreds trade flat.

    RBS can offer to buy these back at pennies on the dollar, but they can't force the issue. You can't devalue a senior equity (preferred) and leave the ordinary shares intact.

    It always makes me feel that others know something I don't...

    The ordinary action looks good... and coming of the bottom, a far better investment than the preferreds. Maybe it's all traders, and this is just a bear trap for ordinary holders.

    The action in the preferreds is making me very edgy. Can't help but feel as if we are waiting for the other shoe to drop.

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    • You are right they cannot force the issue of conversion. You are wrong that they have to repay the preferreds are par. They can just leave them outstanding.

      The preferreds will not advance until there are buyers. That takes time and some stabilization. Fortunately there have not been sellers, although every owner has a time and price, so sellers will return.

      • 3 Replies to maverick7572000
      • I understand that they can leave them outstanding. I simply meant that to take them out, they have to redeem at par. Can't do a cram down -- unless in bankruptcy (which might be a wipe out). Although the UK Gov't seems to have insured that there is some equity left on the table.

        And while they can suspend dividends, they cannot resume on ordinary without paying on preferreds. Given that they even brought up the subject of paying dividends on ordinary, this bodes well.

        Still movement relative to ordinary is frustrating.

      • You are correct, they cannot force a tender for under par, but they can structure the offer so that it would be punitive if you did't do the exchange (i.e. what Citigroup did with their perferreds - if you don't take the stock swap, then you get no interest)

        Also, I thought it was interesting that in Exchange and Tender offers for certain tier 1 & upper tier 2 securities, the offer is only 50-55%.

        http://www.investors.rbs.com/downloads/032609_announce.pdf

      • As long as they continue to pay the dividend, which I think they can, I do not want redemption. I make lots of money on the dividend while the stock gains traction. They clearly stated they wanted to pay common next year, way optimistic, but it shows the commitment, and suspending the pref div would signal the very opposite.

        At this point I want double the common price for conversion! Again, very wishful thinking.

    • You seem to get it, methinks. At least on the preferreds versus common and on questioning Moody's. You are spot on regarding a potential swap offering on the preferreds; right now they'd have to offer at least $10 bucks, and I'd sell and pick up other preferreds under $10.

      On the price of preferreds: The RBS preferreds have traded low for a much longer time that some of the other financials. I've not seen any competition for shares for quite some time (missed the run to 7 a week ago). The most important thing I see is no significant selling. Consistent with my posts yesterday, without much buyside competition a move to that $8 buck will be post cleansing all the shares they can.

      good luck, and happy Friday,

      jack

      • 1 Reply to lukijack
      • Why the $10 on a tender offer?
        Also why could they not just suspend divi.'s and offer nothing. The language prohibiting this seems very vague. I have heard the arguments about inability to raise further capital and further credit market turmoil ect. but with defacto-nationalization; why would/could they just stop the preferred payments AND ABSORB THE TUMOLT AND SHOUTING THAT WOULD ENSUE?
        TIA

 
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