Can you do one of those neat excel spreadsheets showing the pref yield and price
For somebody who has an answer to everything and post daily, I imagine your in total shock right now.
This will continue to spiral unless the company or governtment clarifies the harsh words. The fact it goes down to jr bonds shows how bad things really are not only at RBS, but many UK companies. The end is near if they do not pay the bonds.
Let's look at worst case scenario. They suspend preferred divis for 2 years. Taking the L's for instance, now just above 9 dollars, and I'll use 9 dollars.
Suspend for 2 years, that's a bit under 3 grand in divis. Using an 8 percent return, the 9 now plus the 3 grand is 12 grand plus 8 percent is about 14 thousand; this you compare to around 20 dollars for the value of the L's (paying the divi). That is absolute worst case, which leaves the L's at close today undervalued.
You're gonna retort that they will suspend forever for some longer period of time, without any basis. My 2 years is beyond the point of of write-offs; RBS has indicated that they expect tough times till 2011.
This situation is fluid as they are negotiating this right now, RBS the UK and the EU.
Finally, RBS has sufficient reserves and provisions for losses that it does not have to use "public money" to cover the divi from an income perspective. From page 11 of the financial "The overall economic impact of the APS, in conjunction with RBS’s own extensive restructuring measures laid out herein, is expected to enable RBS to meet the FSA stress tests during its restructuring period." And we shall see if it meets EU stress tests.
The fact is that the preferred here have been priced well below other preferreds. It is not as if they were priced with no prospect of suspension of dividend. Now, I will say that I did not believe a suspension would happen, and now it is unclear the path forward. RBS and the UK have a package that is marketable to avoid it in discussions with the EU, but one never knows. I dropped a lotta cash with the drop today, and will be looking to add if these drop much further, cause a long-term benefit of the current situation and discussions is a virtual guarantee of resumption of the divis at some point even if they are suspended.
C'mon Jack. You argue "a worst case" with no justification but say Data cannot say they will suspend the dividend for a longer period without providing justification? You are smarter than that.
We have not even had a suspension yet. We have noise. Very powerful and concerning noise, but noise nonetheless. If the economy recovers nicely and timely, all will be well. If the economy does not, all will not. Simple as that.
RBS is the largest bank in the world with a balance sheet bigger than the UK economy. It is the economy that matters. Yes, the economy always recovers. Just ask Japan. Time is also a recovery mechanism.