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The Royal Bank of Scotland Group plc Message Board

  • rexobXIP rexobXIP Aug 26, 2009 4:45 PM Flag

    0% yield... and beyond

    Since July 1, RBS common is up 42% and the Preferred Rs are -11% in that same period.

    As a preferred shareholder, this is very depressing. If it wasn't for the lawsuits, I would seriously consider exiting here. The EU is sticking it to the Preferred holders and there is nothing we can do about it.

    Ironic that the UK Government converted their shares from preference to ordinary.

    I have been optimistic until this week, but now I am feeling that the fix is in.

    Anyone with anything positive to say?

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    • UK wont be bullied by EU

    • I find it shocking we are even dealing with this. RBS is still the largest bank by assets on the planet. Deferral of interest/dividends on a debt instrument is DEFAULT, period, end of sentence.

      Technically you can argue it is not, but in reality it is. Does your bank not say you are in default when you miss interest payments on a loan?

      The reality of this if an actual "deferral" was made would be really bad. There is no other way around it and would again shake things up like earlier in the year. The preferreds would trade at maximum half of where they are today. If the largest bank by assets can "defer" so can anyone else, govt involvement or not. Plus any deferral would probably not be given an ending date.

      Although I am scared to death RBS would actually do this, I don't think it would happen. If they actually were forced to have to do this, they would offer an exchange.

      I simply cannot see them issuing billions in govt backed bonds and then weeks later stop paying their preferred dividends.

      Of course, you never know!

    • 1st, I don't subscribe to your basic premise that RBS will discontinue the dividend on their US ADR Preference shares. At this point, this is just conjecture and supposition. Yes, there is a risk of deferral, but it is not a fact and IMHO should be assigned a low probability. 2nd, you are comparing the movement of RBS Preferreds with RBS Common Stock. This is comparing apples to oranges. You should compare Preferreds to Preferreds and Common to Common as the purpose of ownership is not the same. 3rd, the timeframe of your comparison is very short term. Unless you are a trader (not an investor), looking at such a short comparison timeframe can lead you to wrong conclusions.

      Now, RBS common closed today @ $18.40 (less than $1 split adjusted) compared to its January 20th low of $2.86 it is up 640%. However, you need to remember that RBS common was trading over $200 per share in 2007, so even after this nice run, it is still down over 90% from its high.

      Contrast this to the Preferred; I’ll take H as an example. At its January 23rd low it was trading at $2.59 compared to its close today of $12.22 it is up 472%; however, it didn’t drop as far and is only down 50% from its $25 par value.

      Based on the above, which has performed better? From my perspective, although the common has rebounded faster of late, overall, the preferreds have been a better investment. Also, don’t forget that the Preferred has paid 3 dividends since its low. For the H series that is $1.36.

      I encourage you to take a longer view perspective. Yes, you can choose any particular timeframe and show the common or the preferred has over performed the other, but recent history is not necessarily a good predictor of future performance.

      And again, I really don’t believe that the dividend will be suspended. I would estimate (based on risk adjusted pricing), that there is less than a 20% chance of this occurring. And if it does, the duration would be short. IF you truly believe that the dividend will be suspended, then I would suggest you sell right now, but that is not my view (nor that of the market). The preferreds have had a nice run, and you would expect some pull backs. We are still trading around the same price that we had in June. If you take a contrarian viewpoint one would estimate that the relative performance will change going forward.

      RBS common has performed well, but it is bouncing off a much more exaggerated low, so one would expect it to bounce faster and higher. My advice is don’t compare the 2 securities as they really don’t have that much in common.

    • Your first decision is whether you own preferreds for the yeild or for trade. If the yeild, then do need the divi every quarter or not; can you live with, for instance a year of no divis? Two years?

      I lightened up, before today, but because I was way overweight at RBS.

      Common versus preferreds, sometime you have to ignore it.

      Preferreds along the board really beat up today. ING IND's were 20 dollars 2 weeks ago and closed at $14.18 today.

      I can't tell you where the RBS will settle, but I can tell you they were being accumulated today. Too, the divi is now much riskier than 2 months ago, because of the EU Commission.

      For my core RBS preferred position, I'm willing to ride it out. But, I can take a divi suspension for a year (if so, the current preferred prices are still an excellent investment; the L's, for instance at 10 bucks, about 1500 divi assumed lost for year gives one a 10 dollar investment if held through the year is worth very high teens when the divi is resumed, at least a 70 percent return on capital followed by a divi).

      I do think that RBS and the UK will try to avoid any divi cuts. And the UK shift from preferred to common was much riskier for the government. If by chance they cut the divi for a period of time, I will be praying for the preferreds to drop another couple bucks or more and then will be selling others to add again RBS.

      The current threat of suspension is nowhere close to the threat early this year. Course, the preferreds were cheaper then, and IMO the real financial bottom on these was about 5 bucks early in the year. They traded lower, but that was hysteria. I've mentioned here that if they were to announce a suspension with a limited term, let's say 2 years definitive, prices might drop but only due to trading and should easily exceed today's close when they settle.

      good luck,


    • Okay... I'll have a go myself. Several upgrades and some positive comments out of Stephen Hester.

      Ironic though that we finally have some positive news and the prefereds are getting flushed.

      What is a prefered worth with 0% yield?

10.57+0.08(+0.76%)Aug 4 4:02 PMEDT