View the article online at http://citywire.co.uk/money/article/a584706
RBS to beautify itself with 10-for-one stock split
RBS claims its lowly share price is unbecoming of a company of its size, so is proposing a complex and cosmetic 10-for-one share swap.
Royal Bank of Scotland (RBS.L) dislikes its regular presence in the ‘fastest moving shares’ tables so much it is proposing a complicated swap transaction to drastically reduce the number of its shares in the market.
In a letter to shareholders the state-owned bank complained that its lowly share price of 23.3p exaggerated the stock’s volatility in that small movements in price generated big percentage gains or losses.
Rather than rely on the bank’s lengthy rehabilitation under chief executive Stephen Hester, however, RBS wants to drive up its share price with a 10-for-one ‘reverse stock split’.
The purely cosmetic move will see the bank undertake a two-stage process. First it will divide its ordinary shares of 25p into one ‘intermediate’ share of 10p and a ‘deferred’ share of 15p. The intermediate shares will then be immediately consolidated, so that for every 10 intermediate shares investors will receive one share of £1. The deferred shares will then be surrendered and cancelled.
RBS says each ordinary shareholder’s ‘proportionate’ interest in its capital will remain unchanged, although the nominal value of the shares will go up.
At the time of writing the transaction would have generated a new share price of £2.34, a level RBS investors have not seen since 2008. RBS claims the higher, less volatile share price would enable a ‘more consistent valuation of the company’.
Although manipulating the share price will not by itself help taxpayers recoup the cost of the RBS bailout, it could smooth the way for a re-privatisation later this year.
Last month it was reported that UKFI, which manages the government’s 82% stake in RBS, was in talks with investors from Abu Dhabi.
A European Union block on RBS paying dividends expires at the end of this month. However, analysts said the proposed share changes would not hasten the shareholder payments as the bank has first to resume payments to its preference shareholders and then make a profit. The bank lost nearly £2 billion last year, and has seen its share price slide 44% in the past 12 months.
In a note to investors Shore Capital maintained its ‘hold’ stance but said: ‘In our opinion, a share consolidation should have no impact on the fundamental valuation of the company. Furthermore, dividend payments should be based on the ability of the company to afford them, not on the number of shares in issue. We currently assume RBS makes no dividend payment to ordinary shareholders until 2014 at the very earliest.’
Shareholders will be asked to approve the changes at the bank's annual general meeting in Edinburgh on 30 May.
News sponsored by:
After Boris announced he was backing Brexit, sterling suffered its biggest slump in six years. Our Market Mavens discuss. Follow the Market Mavens LinkedIn page for weekly videos, in which our panel of industry experts share their views on financial news
The Citywire guide to investment trusts
In association with Aberdeen Asset Management
More about this:
Look up the shares
More from us
- RBS: will Sheikh Mansour ride to the rescue?
- RBS tops FTSE on Abu Dhabi stake sale talks
- Abu Dhabi may buy government stake in RBS
- Taxpayer-owned Lloyds and RBS to cut 1,900 jobs
- Investors sue RBS and former directors for £2.4bn
- RBS losses widen as it tries to defuse bonus row
Tools from Citywire Money
From the Forums
Weekly email from The Lolly
Get simple, easy ways to make more from your money. Just enter your email address below
An error occured while subscribing your email. Please try again later.
Thank you for registering for your weekly newsletter from The Lolly.
Keep an eye out for us in your inbox, and please add firstname.lastname@example.org to your safe senders list so we don't get junked.