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The Royal Bank of Scotland Group plc Message Board

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  • rexobXIP rexobXIP Sep 17, 2009 2:40 PM Flag

    RBS preferreds - from the other side of the Pond

    And the debate rages on re: the advantage of F, H, and L series shares over other series. Despite the language everyone quotes, "In addition, such non-payment shall not prevent or restrict (a) the declaration and payment of dividends on any other series of dollar preference shares or on any of our noncumulative
    preference shares expressed to rank pari passu with our dollar preference shares..."

    The reality is these prospectuses have so much contradictory language that I think the language cannot be parsed. These things are going to be treated equally, so all those paying a premium for series F,H and L are simply... paying a premium.

    Read the language below (I've reread it multiple times and arrive at the same interpretation) and let me know where I am misreading.

    Good luck to all.

    From the same non-cumulative prospectus, series R, comes the following language, which seems to state that cumulative pref shares excepted, all parri pasu non-cum shares will recieve the same pro-rata dividend:

    "If dividends are to be paid but our distributable proÑts are, in the opinion of the board of directors, insuÇcient to enable payment in full of dividends on any series of dollar preference shares on any dividend payment date and also the payment in full of all other dividends stated to be payable on such date on any
    other non-cumulative preference shares and any other share capital (other than the cumulative preference shares) expressed to rank pari passu therewith as regards participation in proÑts, after payment in full, or
    the setting aside of a sum to cover the payment in full, of all dividends stated to be payable on or before such date on any cumulative preference share, then the board of directors shall (subject always to subclauses (i) and (ii) of the preceding paragraph) declare and pay dividends to the extent of the available
    distributable proÑts on a pro rata basis so that (subject as aforesaid) the amount of dividends declared per share on the Series R preference shares and the dividends stated to be payable on such date on any other non-cumulative preference shares and any other share capital (other than the cumulative preference shares) expressed to rank pari passu therewith will bear to each other the same ratio that accrued
    dividends per share on the Series R preference shares and other non-cumulative preference shares and any other share capital (other than the cumulative preference shares) bear to each other.

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    • One, I would agree that parsing the language is most difficult. And IMO the EC cannot do it any better than I.

      That said, any burden sharing (punishment) borne by the preferreds is very likely to be part of negotiations. And, since the RBS annual is very clear in distinguishing the F, H, and L's as a debt obligation, that will make some difference.

      I believe the Westminster's are an obligation under Westminister profits, which is why these are listed separately in the account notes as under westminster. However, it is the governing Board that must declare all dividends.

      The ABN's??? Hmmmm???

      From the EC's perspective, the EC may not give a tinker's damn about any legal separation and may try to toss them together (say, a burden sharing amount of 30 percent of the total of par of all preferreds. Then maybe they let RBS sort it out. Hypothetically of course. And if you think I kidding about EC cavalierness, they are in danger of upsetting the ING bailout that appears to be reasonable to me and was progressing o.k., and it may well wind up in court. ING now cannot rid its ABN component, cause the buyer backed out and this is certainly going to lower the market value of it. The EC appears to be playing hardball, but like a fastballer with no control.

      jack

    • Parsing legal document language can be invaluable, although it is difficult and may require knowledge of case law. Simply having a comma (or not having one) can cause the same sentence to mean two totally different things.

      I suspect there is a slight advantage to certain pfds, but one that is irrelevant in practice. The Ls for example, started out as a different security and were exchanged. The prospectus states that on the exchange pfds, dividends are required to be declared unless (paraphrased) 1) it would breach of the capital adequacy requirements, or 2) there would be insufficient distributable profits to cover all pfd divs. Required.

      A glance at the M prospectus says divs are discretionary and are up to the sole and absolute discretion of the board. A lot different than required.

      Clearly those two pfds are different, but it is meaningless. They will all be treated similarly unless push comes to shove, in which case, things will be really bad for all concerned.

      Regarding NatWest, interesting info. IF push comes to shove, I am not sure the authorities will honor the separate capital structures - the US has certainly demonstrated that in the economic crisis. Likewise, assets get upstreamed and downstreamed to subsidiaries for various reasons. While we would think no such moves would occur to the detriment of NatWest creditors, are there any assurances? Perhaps the regulators are a limit to that activity, perhaps not.

 
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