What is causing RBS preferreds to drop so precipitously?
I realize that long term rates are rising but these are yielding 7.6-8.1% well above the average for debt/preferreds. Yet these have dropped 15-20% in the last year and show no sign of stopping. Any insights?
The drop in RBS preferreds (greater in the "may pays" and trust preferreds) seems to be caused by the possibilty of another EC ordered suspension. Here is the scenario: RBS gets split into good bank/bad bank; the aforementioned preferreds are placed in bad bank; to maintain viability of bad bank, the British gov't must provide either guarantees or money; with such gov't backing, the EC again orders a suspension of dividend payments b/c the bad bank would have a competitive advantage. I feel this chain of events highly unlikely, but that is why the drop.
The Ls are getting hit worst of all and they are not in the "may pay" category. Also don't see how you can take "preferred shares" and put them in the bad bank, while keeping "common" in the good. These are higher ranking equity instruments and it seems improbable that they could legally bypass this structure without a shareholder suit.