I saw Bloomberg's piece today on the RBS subordinated notes. I emailed the author, John Glover and mentioned the uncertainty over preference shares. He kindly replied to me saying he would update his piece. Well, here it is...
He doesn't actually mention the prefs but it's still an interesting read. My understanding is that Bloomberg's policy is to report the facts and not make any speculations.
Good luck pref holders!
But unless there is a more explicit -- read "clear" -- statement, the preferred shares will continue to languish, and every time a story breaks such as this morning, the shares will nosedive.
And nothing I have read seems to exclude RBS hybrids from the "burden sharing" mandate. And certainly the market performance reflects this.
In the meantime, I found an email link to the European Commissions finance diviision as it were -- and sent my opinions and comments ( and requested a response). I will wait to see what happens.
If anyone else is interested, you can access it via
Good luck to all
And of course, the RBS ordinary is up nicely today.
We would have put this Fitch thing behind us and been cruising today if not for this story.
Seems like we may be in for death by 1000 cuts. Every time the EU/EC exerts some muscle, all these preferreds will tank. Imagine if you had the same negative force operating on the ordinary. Shareholders would be screaming.
Anyone have an email address for the EC commissioners? I think we ought to get shareholders to email and let them know the damage they are doing... to confidence in banks, to retirees incomes, to investors, and to the economy.
Uncertainty is both negative and contagious.
Except that it is probable seen as an example of the power the EU/EC exerts over the banks. So if they want to shut down the interest payments, they can.
That spooks people...
And creates a buying opportunity.
Some will spook and sell and some will see this as an opportunity to buy. It seems to me the Bank has no intention in stopping the interest or the dividends. Not calling ,seems to me to be the better option in obtaining(keeping) capitali in view of current market conditions. Preferreds shought be going up today.
The article states..
<<As well as not calling junior notes, some European banks bailed out with state funds have skipped interest payments on the debt. Northern Rock Plc, the first lender nationalized by the U.K. in the deepest credit crisis in decades, said last month it would defer coupons on eight subordinated bonds with an aggregate face value of about $2.74 billion. >>
Even though this does not directly refer to RBS, and the bank is not officially
"nationalized" it shows that deferral of interest is a definite possibility.. and the preferreds are selling off today in response.
Don't get me wrong.. I have a large position in these issues including some bought originally at par. It would be a bad outcome if dividend payments were suspended.
This thing appears overblown... read the more insightful Reuters article below.
As I understand it there is no default whatsoever by RBS -- as of this time all coupons have been paid, and it was their option not to redeem.
I will pick up a few more shares if the weakness continues
EURO CORP-CDS on RBS widen, indexes marginally tighter
Sunday September 06, 2009 03:49:08 AM GMT
* Subordinated financials index slightly wider
* Main CDS indexes little changed as U.S. jobs data awaited
* EDF, RCI Banque offer two new euro issues in cash market
By Jane Baird
LONDON, Sept 4 (Reuters) - Credit default swaps on Royal Bank of Scotland jumped wider on Friday after the British bank said it would not call four subordinated notes in October at the instigation of the market regulator.
Five-year credit default swaps on RBS subordinated debt widened by around 20 basis points to 325 basis points, a trader said.
The Markit iTraxx five-year subordinated financials index was 2 basis points wider at 177 basis points, the trader said. The index had widened by more than 5 basis points soon after the RBS announcement.
"The concern is could other UK banks be forced to follow suit by the regulator," credit strategists at BNP Paribas said. "However, the general feeling is that the reaction could mellow out as these are in fact relatively small issues."
The four deals included two Upper Tier 2 notes for 400 million euros ($570.8 million) and 100 million euros and two Lower Tier 2 notes for 590 million Australian dollars ($495.8 million) and 410 million Australian dollars.
Five-year CDS on RBS senior debt widened by around 6 basis points to 131.50 basis points, according to Markit data.
INDEXES LITTLE CHANGED
Meanwhile, European CDS indexes were little changed as investors awaited key U.S. data on non-farm payrolls later in the day.
By 0829 GMT, the investment-grade Markit iTraxx Europe index was at 97 basis points, according to data from Markit, 1 basis point tighter versus late on Thursday.
The Markit iTraxx Crossover index, made up of 44 mostly "junk"-rated credits, was at 619 basis points, 1 basis point tighter.
"The focus has quickly turned to the labour report at the end of the week," BNP strategists said. The numbers "could set the tone for the next few weeks, which should also see trading volumes return to normality following the long weekend in the U.S."
In the cash bond market, two euro issues came from EDF for 15 years and RCI Banque for two years.
"In cash credit, we're focussing on the new issue pipeline, with investors hoping the sluice gates open pretty sharpish to allow them to get invested," wrote SG CIB strategist Suki Mann.
"If they don't manage this, we think investors will be forced to chase - albeit reluctantly - the secondary market tighter."
The FTSE Euro Corporate Bond Index showed investment-grade corporate bonds in euros yielding an average 145.1 basis points more than similarly dated government bonds, 0.5 basis points less on the day.
In underlying government bond markets, the yield on the interest rate sensitive two-year Schatz was 1.156 percent, 0.1 basis point less on the day. The 10-year Bund yielded 3.261 percent, 1.7 basis points more.
The 10-year euro swap rate was 3.4670 percent. (Reporting by Jane Baird; Editing by Jon Loades-Carter)
Thanks for the IR update; the early redemption must be optional, versus mandatory or else it would be a default; as you suggest, replacing this capital would be far more expensive, will be a long time before RBS can sell subordinated debt with a 6.625% coupon again.