ROYAL BANK ADS (RBS)

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RBS Studies Options For Further Capital Structure Tweaks
Last update: 3/16/2010 5:15:43 AM


By Margot Patrick
Of DOW JONES NEWSWIRES


LONDON (Dow Jones)--Royal Bank of Scotland Group PLC (RBS) is continuing to study its options to make further adjustments to its capital structure, a spokeswoman said Tuesday, a process that analysts estimate could result in a gain of as much as GBP3 billion for the 84% state-owned bank.
RBS Chief Financial Officer Bruce Van Saun said three weeks ago that the bank expected to make a decision around mid-March on a potential "liability management exercise" that is expected to see the bank to exchange the bulk of its remaining GBP14.1 billion in preference shares and subordinated bonds for new contingent-capital notes or cash.
Analysts for months have been saying the move would be a no-brainer, since the securities are trading at only about half of face value as a result of the European Union's coming ban on RBS making interest payments or redeeming them for at least two years as a condition of its GBP45.5 billion government bail-out.
The ban starts at the end of April, meaning RBS would have to launch a buyback before then.
"Clearly, we have a window here to study a liability management exercise, and we certainly are considering our alternatives there," Van Saun told analysts Feb. 25. "I would say it's not an easy equation, with all the changing regulation around capital quantity and capital quality. We're certainly looking through that and considering what course of action we should take."
The spokeswoman for RBS said Tuesday that no decision has been reached yet, and declined to comment on a Financial Times story that says at least GBP10 billion of the debt will be repurchased. Hedge funds and other holders of the subordinated debt are keen to know RBS' plans, with an eye on making a profit from the premium RBS would be expected to offer over the debt's market prices.
Analysts have previously laid out their expectations of how such an exercise could help bolster RBS' capital structure and balance sheet, with Exane BNP Paribas' Ian Gordon anticipating that RBS could book a GBP3 billion gain. Such a move might also result in RBS reducing its reliance on a GBP8 billion contingent-capital facility provided by the government as part of the bank's restructuring late last year, costing the bank GBP320 million in annual fees.
RBS already made a series of debt exchanges last year, resulting in a GBP4.6 billion pretax gain in its first-half 2009 results. Other banks, including Lloyds Banking Group PLC (LYG) and the Netherlands' Rabobank, have exchanged subordinated debt for contingent capital notes, known as CoCo bonds, that either convert to equity or are written down to a fraction of their face value in times of financial stress.
RBS shares at 0910 GMT were up 1 pence, or 2.3%, at 44 pence.
-By Margot Patrick, Dow Jones Newswires; [phone]; [e-mail]
(END) Dow Jones Newswires
March 16, 2010 05:15 ET (09:15 GMT)