Here is a fixed income note from BAML to whet your appetite my fellor Tier 1 junkies.
Sale of RBS stake to SWF Bottom line The BBC is reporting widely that the UK Government is preparing to sell ‘as much as a third’ of its 82% stake in RBS. The negotiations are reportedly with Abu Dhabi sovereign wealth funds.
The sale to a sovereign wealth fund would in our view confirm that the UK Government wants RBS to be a ‘normal’ bank, as opposed to a tool of Government policy. This is important for the investment case for the bank’s perps (T1) bonds.
Once we accept that the bank is heading for normality, it means that they have to switch their perps back on asap. Switching on the bonds would also be a necessary condition precedent to any dividend payment to shareholders. Overweight-30% the 4.243% €T1 at 56.
Issues to consider The sale could be potentially loss-making (shares currently trading at around 28p versus the 50p the Government bought them at). We would be hopeful the UK Government could cut a better deal than implied by those bald prices. A deal is not imminent but could happen before Christmas, according to the BBC. The Treasury has apparently countered this by saying it will stick to its plans to return RBS to the private sector when it delivers value.
Sounds like the UK government is interested in divesting part of its position in RBS even at a loss. Why not wait a while longer and seek a better return? Or does the UK government know something that motivates this move? Should RBS equity holders be concerned?