RBS – THE SHOW IS SLOWLY COMING ON THE ROAD!

 

Last night’s news, after trading hours, that the process of selling off the taxpayer’s 71% stake in RBS would be underway soon, came as no surprise to the market, with perhaps a few observers muttering under their breath – ‘Hammond, you are a bit late with this initiative, Old Bean!’ However, in all fairness, market conditions are not exactly ideal for an off-load of billions of Pounds worth of shares over a protracted period. Political turmoil in Europe leaves something to be desired! There could be a fair number of unforeseen imponderables over the proposed sale period. Investors dislike overhangs at the best of times, particularly if the time scale is 5 years.

 

So, as we understand it, UKGI will sell circa 925m shares – 7.7% of the bank, through what is described as an accelerated book building process. The idea is for the Government to offer £3 billion of shares over the next 5 years. With last night’s closing share price being 280.9p and breakeven for the taxpayer at 503p, a loss of £2 billion for the first tranche seems likely. A loss to the taxpayer is not a great concept, there is clearly a need to get RBS back into private ownership to give the bank a chance of making decent advances in terms of lending.  The balance sheet is about half the size it was a decade ago. There is little evidence of any remnants of investment banking. The fines have been made and paid.  PPI is diminishing in terms of damage limitation. There is of course the outstanding problem with its Global Restructuring Group and this issue could drag on. However, Optics and credibility suggest that RBS should come off the Government’s balance sheet and the net proceeds for the Treasury would be very welcome, even though a fair old loss of maybe as much as £10 billion could be incurred, unless the share price were to rise like the Phoenix from the ashes. 

 

News of this forthcoming part sale of RBS shares has hardly captured the market’s imagination this morning - shares are down 3.42% to 271.3p! Hopefully UKGI will put some more meat on the bone! The banking sector is very much ‘unloved.’ However, Rome was not built in a day and there are many investing punters out there who believe that there is scope for recovery in the years to come. But the process may be long and tortuous. However, there a fair few obstacles to negotiate and first and foremost we need to know if Ross McEwan is staying as CEO and who will be replacing Ewen Stevenson as finance Director?

 

UNICREDIT/SOCIETE GENERALE 

After 20 years at Societe Generale, UniCredit’s CEO Jean Pierre Mustier has clearly had the idea of this Franco/Italian bank merger in his sights for some time.  Italian banks were woefully under-capitalised and in many cases, they still are. UniCredit’s health is in better shape than any others, after a €13 billion rights issue last year.   I would hardly describe the timing of this proposed merger, when cracks in the EU infrastructure are starting to appear with monotonous regularity. However, give M Mustier dix points for his vision, drive and ambition for putting these two banking titans in bed together. It is hard to see some of the synergy, but M Mustier knows both businesses exceptional well. To have shrugged off the Jerome Kervier scandal after a decade, says something of the resilience om M Mustier – Teflon come s to mind. We will all be watching the developments with interest, as Italy’s populous seems rather tired of the omnipotent power of Germany in France in EU affairs.

 

David Buik

Core Spreads

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