Historically, buying RBS Preferreds when everyone else was selling turned out to be a profitable decision.
IMHO, the selling is emotional not fact based and with such low float makes a large price swing.
Do you have the bal...... err Intestinal Fortitude to run against the herd?
I added to my position today...... time will tell... but will at least catch the Q3 divy.
Thank you very much.
Agreed on the EU's focus. From the remarks Stephen Hester delivered in early August:
"Then the EU is very important. The EU needs to approve the [APS] scheme. They have to look at two things: basically they have to look at viability - is our restructuring plan going to do the job? I believe it will but we need to make sure they’re persuaded of that.
And then secondly, they look as if they want to take a crack at our domestic market shares as they have done in the other banks, Fortis and Commerzbank and so on. They are particularly focused on our small business market share, we are in the middle of discussions on that so it is premature for me to know the result, and there are some obvious issues around customer disruption as well as our own disruption that we are trying to minimise."
aev and aeh; they also have aef and aed. All are the same, cept coupon.
Well, RBS could make an offer less than par. But, I do not think it would be much less. Earlier this year, like when BAC did the offering, they had more psychological leverage when the market was down. IMO, in the UK they set things up to have common take the hit, and intentionally protected sub debt and hybrids like preferreds. I will concede IF the EU demand suspension as a condition, then RBS could offer much less while at the same time informing of a suspension. Right now, however, RBS is in a situation where it can financially support the divis (based on the framework of the UK bailout), and I believe this puts the preferreds in a position where they will not put the screws on too much (like suspending for 2 years then offering 12 bucks for them). Lotsa guesswork here.
I believe the primary focus of the EU will be on asset unwinding. I noted earlier on this board that I thought divi suspension would be limited to firms where the cash flow AND accounting clearly could not support the divis, basically where it was abundantly clear the goverment support money was going quite directly to the divi. If you know any accounting, all the money is sorta in one pool and one can argue that any goverment support went to the divis first (not last). One really has to set up balance and cash flow pro forma sheets to address this question, and I imagine this is part of the technical details provided the EU and UK for these discussions.
"There is a prospect that if they suspend the divi that they will also do a conversion offering on the preferreds, probably to common, and if so the offering will be very good, either at par or close to par. Basically, they could with a new senior or junior debt offering get enough cash to purchase all the "hybrid debt" that is now threatened. The rumor is that RBS may try to buy out the UK government investment, and this may be the case, but a much simplier approach would to simply buyback all the hybrid securities."
Question 1: Why would RBS make an offer to purchase its preference shares at par or near par? Isn't it a lot more likely that they'd do something like what Bank of America offered to certain of its convertible preferred shareholders? See http://seekingalpha.com/article/140149-bac-preferred-exchange-hardly-equitable .
(A quick parenthetical observation: On the Fitch call Tuesday morning, one analyst in the QA period noted that the EU's "burden share" requirements benefit the RBS common shareholders at the expense of the preference shareholders -- turning typical equity law on its head. There was a brief discussion about the possibility of conversion of preferred shares to common a la Citigroup, but I note that none of the prospectuses for the RBS preferred shares that I have looked at have a built-in convert-to-common clause).
Question 2: What is the symbol of the AEG preferreds that you purchased?
As a long-time lurker on the board, I have appreciated your posts over the last several months, and thank you in advance for your responses.
No time limit on how long they can defer paying pref dividends. They cannot pay a penny to common stockholders until all pref are paid though. They claimed 2 years was the hopeful time period to start paying a div on the commons again.
Remember, this is not in the hands of RBS, but rather the EU and how far they take their bold and unclear statement!
I have lightened my load of RBS pref as this mess was unfolding. I will look to buy back when a bottom is set or clarification is made.
Perhaps it woud be better to consider the ING and AEG preferreds. They are not banks, they are insurance companies and as such may escape this mess. They are also deferrable, but cumulative and the parents are working hard to raise capital to pay back government money so in any event a deferral would not last long.
Thanks for the advice - I am not much of a trader either. Patience is something I have had to learn with the market and this preferred mess is definitely testing me. I just want to protect my capital from being destroyed which seems to be the case with RBS lately.
I will see what tomorrow brings, I am hoping for a little rebound but if it is down more I might choose to move on to something a little safer.
I added a few RBS-Ts today myself. Like you said, there aren't a lot of facts on the table right now, but the market hates uncertainty -- hence the drop, and perhaps the opportunity.
Here's what I don't know:
* whether the EU's "burden sharing" stance applies to ADRs
* whether in fact the RBS ADRs that most of us hold are in fact the "hybrid bonds" that would trigger EU action (on that topic, see http://online.wsj.com/article/BT-CO-20090826-710374.html)
I listened to the Fitch presentation Tuesday morning (see http://uk.reuters.com/article/idUKWNA178520090820 for a listing of the affected RBS issues; I'm not sure whether the reference to RBS preferred shares includes the US ADRs) and while the presenter stated that he was sure the EU "would have their pound of flesh" he also opined that any deferral of coupon payments would be very much on a case-by-case, name-by-name, *negotiated* basis.
The unconfirmed trading speculation and huge volume in London earlier this week purportedly based on RBS government share buy-back colors the whole discussion and adds to the uncertainty.
Time will tell whether this in fact is an opportunity, but fortune favors the brave.
I added preferreds of AEG today.
I think that this may be the bottom day for the preferreds. Unless, of course, we actually SEE some bad news. If today winds up being the bottom day, then this will have been an accumulation rundown (with some significant fear selling) on the EU government assisted firms preferreds.