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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.

 
RBS to beautify itself with 10-for-one stock split

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.

42 comments so far. Why not have your say?

mark senior

Apr 25, 2012 at 16:38

This is the worst idea I have heard in months.... are they mad !

Already proved they are capable of destroying the bank to penny share status, now they want to risk doing it again!

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sgjhaghsdg

Apr 25, 2012 at 16:40

What do you call a dog in a dress?

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Anthony Tinslay

Apr 25, 2012 at 17:16

Oh what confusing fun. If 1p movement in current share price is seen as volatile and a large percentage. how does that improve things when the price is £2.34 and the equivalent price movement is therefore 10p. It is still a 4.27% change.

Perhaps it will make the Directors feel more comfortable and able to sleep at night when RBS no longer appears in the Penny Share journals?

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Panchovilla

Apr 25, 2012 at 17:19

How much is this all going to cost?

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William Bishop

Apr 25, 2012 at 17:26

Obviously represents final admission that the chances of the share price recovering more than a tithe of its losses are zero. May even be pushing it to envisage the Government getting its money back.

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Andrew - London

Apr 25, 2012 at 17:29

The share price is a reflection of current and future value of the company. The execs of this company have already completely destroyed share holder value and this has been reflected in the share price. And now they want to do it again! When will the fund managers be brought to account for continuously allowing these execs to missmanage companies and destroy share holder value...

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Suze Jamieson

Apr 25, 2012 at 17:36

As someone I knew once said about a plant in a garden: it doesn't doesn't matter how much lipstick you put on it, it's still a Gorilla.

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Roger Lawson

Apr 25, 2012 at 17:45

Who they think they are going to fool by this move? The company's explanation of why they are doing it really makes no sense - see www.sharesoc.org/blog.html for full analysis. The share price volatility of RBS is driven by investor sentiment because in essence with no dividend stream and uncertain prospects, this is a very speculative stock.

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Malcolm

Apr 25, 2012 at 18:01

If that's the best these highly-paid executives can come up with, I despair for the future.

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mikeran

Apr 25, 2012 at 18:08

well most of it has already been said by earlier posters. But I am a small investor in RBS, I have already lost on my investment. And continue to hold in the hope that both Management and UKFI get a grip and stop paying themselves so much. I feel I am about to lose yet again, with this ill thought out scheme.

But the hedge fund players , many operating outside UK shores, must see another bonanza coming , all the way down from £ 2 something.

They have already scooped a jackpot and continue daily to play it up and down , well below the Govt. bail out price.

Now think again UKFI and RBS, get a grip ang turn this company around.And FSA look around and see how this stock is being played on a daily basis.

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J Thomas

Apr 25, 2012 at 18:12

No doubt Mr Osbourne will claim that the investment can now be sold as its reached its target price of 50p.

If I recall the last FTSE 100 company to try this trick was Marconi....

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DJC

Apr 25, 2012 at 18:30

OMG, now I've seen it all! is the same RBS that made a 3 for 1 share split to improve 'marketability' some years back when the shares were trading at around £18? Can nothing be done to protect private shareholders from incompetent managements, lazy and compliant non-execs and idle regulators?

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Robert Goddard

Apr 25, 2012 at 18:45

Glad that I mso0ld RGS some time ago and bought for income with the proceeds.

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Anthony Tinslay

Apr 25, 2012 at 18:52

Further to my earlier comment I think that many are missing the 'hidden agenda' Apart frong the misleading heading - ten for one stock split' which should read One for ten it is the nominal or real capital that is being devalued.. If you now hold 100 shares of nominal 25p each you hold nominal capital of £25. After the consolidation you will hold 10 shares of nominal value £1 each or total nominal capital of just £10. That is another way of saying that 60% of the capital of RBS owned by shareholders is being written off. In theory of course the market value remains the same.

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82 yo

Apr 25, 2012 at 19:04

Share consolidation - which it is - is normally played by the companies which expect the share price to drop dramatically - at present the drop could be from 20p to1p and no further - when the shares are 200p the equivalent drop would be 200p to 10p with further room to drop

I can think of a company which over the past 8 years consolidated twice at 1 for 20 which would have resulted in a share price of 0.01p without consolidation

I am not suggesting such drastic intentions here but why consolidate and incur the expense - hope the non executive directors will step in and stop it

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Nick-

Apr 25, 2012 at 19:26

This is just another con trick deception!

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Jim Dedicoat

Apr 25, 2012 at 19:33

Like others I can't believe this.

What about all the unnecessary costs involved here and diversion of the directors minds to this nonsense.

Better for them to concentrate on getting RBS back into profit, then they will not have to worry so much about the violent share price movements as the price will have risen for good economic reasons. Time to start thinking of the shareholders interests again, that is what they are there for.

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Drake

Apr 25, 2012 at 19:33

"stock split"

Wrong - it's a share consolidation. Anthony Tinslay is right. 60% of the nominal capital is being cancelled - that's a capital reduction. That's normally done to create distributable reserves. But their losses are so great I don't think that would get them into positive territory. So what's the reason for it Citywire? Have you read the press release?

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Roger Lawson

Apr 25, 2012 at 19:56

The reason for it is given by the company in their letter to shareholders regarding the AGM where it is on the agenda - see the company's web site for a copy. They claim it is because the volatility of the share price, on such a small base, creates abnormal percentage swings. Absolute nonsense as I suggested above. Looks more like a ruse for the advisers to generate fees to me, for what is a pointless exercise.

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ian thornton

Apr 25, 2012 at 20:05

The article refers to a reverse stock split which is the same as a consolidation. Have you read the article? haha

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Redundant (Old Timer?)

Apr 25, 2012 at 20:07

Is not Basel III coming in soon? That will require Banks to hold more Capital to ensure they can survive another crisis, so why reduce their nominal capital? Does not make sense!!

82YO - "hope the non executive directors will step in and stop it" - unfortunately I suspect they will have had to already approve this, so only the shareholders can stop it by voting it down.

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ian thornton

Apr 25, 2012 at 20:29

Again wrong.. no shareholder consent is required for a reverse stock split.

A company’s board of directors may declare a reverse stock split without shareholder approval.

Although the SEC has authority over a broad range of corporate activity, state corporate law and a

company’s articles of incorporation and by-laws govern reverse stock splits.....

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mikeran

Apr 25, 2012 at 21:48

Well 82% of the shareholders are the taxpayer-- ie UK govt. and managed by UKFI. so is this a scenario that needs the Daily Mail or just your MP.

Good question !!

Has it been approved by the Government ? surely it has through UKFI.

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mo khan

Apr 25, 2012 at 22:20

Rape and pillage by so called Bank Professionals of RBS continues. To date no one at the bank has been found or sacked for incompetence OR under performance the Bank professional are on a feeding frenzy they are still there, sucking the bank dry.

Change the name too , sound of RBS leaves a bad taste in the mouth for it ever to recover. This proposal and action of lipstick on a PIG, only goes to prove this. Admit the pillage, Kill off RBS and with a name change too. There is nothing Royal about it.

Chief of the bank has already given up, his bonus that was foolishly offered in a knee jerk reaction agreed to as Tax payer bailout .

Giving up his legally entitlement bonus, for political appeasement What kind of business does that rendering bank to a charity status. Bank with no VALUES or is it no value!!!

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Maverick

Apr 25, 2012 at 23:42

Calling it a "reverse stock split" is just as reprehensible as the actual consolidation.

Pure window-dressing.

Nothing would induce me to buy RBS shares. Or any financials, in fact.

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Anonymous 1 needed this 'off the record'

Apr 26, 2012 at 09:35

This is another potential rip-off for shareholders investors have lost out as

investors in the company re-invested in the hope that the company will turn

around and it looks as though we are going to receive another shafting.

Enoughs enough change the board at the earliest opportunity

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ronald searle

Apr 26, 2012 at 10:00

con trick to benefit big holders.small holders with quantities not exactly divisible by 10 will lose a disproportinate part of their holding

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Redundant (Old Timer?)

Apr 26, 2012 at 10:04

Ian Thornton - "Although the SEC has authority"? I thought RBS as a UK company only had a secondary listing in the US, its primary one being in the UK.

Now I am happy to be corrected, but my understanding is that whilst Boards can chose to consolidate share capital or make a rights issue, under UK Company Law, which overides US Law for UK Companies, that action requires the consent of the shareholders (and in some cases the Courts).

Hence as the article says "Shareholders will be asked to approve the changes at the bank's annual general meeting in Edinburgh on 30 May."

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John B - (Not the sloop)

Apr 26, 2012 at 10:20

You only have to look at the SP's of two other companies that have completed a share consolidation in the past couple of years to see where the potential SP is going. Check out Costain Plc and Inchcape Plc.

Costain still in negative territory, Inchcape a few pennies more .

We (Si's) are again being shafted.by the government's representative's (UKFI) incompetence, and seemingly uncontrollable greed on behalf of some financial institutions.

No change there then!

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Drake

Apr 26, 2012 at 11:17

We have a lot of speculation going on on this website without any real hard facts, so I have taken a look at the RBS AGM documents. Just to reiterate what others have said, this is all governed by English law (Companies Act 2006) and the FSA. The SEC has nothing to do with it except in relation to the secondary listing on the NYSE. The relevant resolutions to be passed at the AGM are numbers 19 and 20. Resolution 19 is to be proposed as an ordinary resolution (over 50 per cent of those voting) and that effects the subdivision, creation of deferred shares and consolidation of the new ordinary shares. Resolution 20 is to be proposed as a special resolution (75% of those voting) and creates the rights attached to the deferred shares and changes the articles of association. The result of the resolutions is, if you have 10 ordinary shares of 25p each you will end up with one ordinary share of 100p and 10 deferred shares of 15p each. You will never receive the deferred shares because they are surrendered to RBS for nothing.

So far as the shareholder is concerned, there has been a reduction in the amount paid up on his or her shares of 15p per share, or 60%. So far as the company is concerned, it owns all the deferred shares and there has been no reduction of capital so long as they are not cancelled. Resolution 20(6) gives the company the right to cancel the deferred shares at any time, but as matters currently stand it could not do so without unlawfully reducing the share capital. The accompanying notes say that “The Company may, at any time, seek the surrender and cancellation of the deferred shares using such lawful means as the directors may determine”. The net effect is that the amount paid up on the ordinary shares has been reduced, the deferred shares are worthless and are owned by RBS, but will just sit there until the day the directors decided to go to court to have them cancelled, which they probably will not do. So the deferred shares will just sit there as an item in the balance sheet. The benefit to the company is that the shares will trade above their nominal value. Shares trading at or below the nominal value are problematic, as there is a Companies Act prohibition on issuing new shares below their nominal value. That is particularly difficult when you come to issue share options to directors. At the moment, if the shares are trading at or below 25p you can’t issue share options. With the new structure (nominal value 100p and trading at 250p, give or take) share options will be much easier. None of this has been explained properly in the RBS circular.

Here is a link to the site. http://www.investors.rbs.com/shareholder_meetings

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82 yo

Apr 26, 2012 at 11:57

So the beneficiaries are the Directors above all - the whole presentation is a sham - for reverse split read consolidation - if RBS feel that the share price does not represent the right feel for the size of the company improve the performance of the company and do not manipulate the share price - shame on the directors - executive and non executive

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JB987

Apr 27, 2012 at 09:35

Thank you, Drake, for explaining this.

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Drake

Apr 27, 2012 at 10:29

I think Mr Thornton must be an American.

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invsb

Apr 29, 2012 at 09:40

Why is the title of this article saying '10-for-one stock split'?

They're not giving you 10 shares for the one you hold and it's not a stock split. They're consolidating the shares so you get one for every 10 you hold.

Change the title to 'one-for-10 stock consolidation'.

Hey Drake - you know what's what.

If they want the share price to go up why don't they just improve the performance of the company?

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jon smith

Apr 29, 2012 at 10:38

half wits all---there has NEVER been a time when consolidation has "worked" and it has always been to the disadvantage of investors---whats worrying is that those in charge are considering this!!!!......yep, weve got to pay obscene salaries to get the high flyers?????who then come up with twaddle like this!!! if your an investor !)GET IT STOPPED 2) get rid of the halfwits who proposed it!!!

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Muggle

Apr 29, 2012 at 12:40

Does anyone remember Tom Winnifrith ,the great share tipster, (sic) describing RBS as a wonderfully managed Bank managed Bank. Still its in better condition than many of his other tips !

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keith boulton

Apr 29, 2012 at 13:04

Can anyone tell me Should i sell my shares now? ( I only have about 700) or leave it until the RBS beautify itself !

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Anthony Tinslay

Apr 29, 2012 at 17:57

Jon Smith - when you use the word NEVER in blocks you open yourself up to comment. Personal Assets Trust is well documented on this forum. On 31 Dec 1992 I had 1,100 shares with a ahare price of c80 pence. next day I only had 11 shares after a 100 for 1 consolidation and it worked as the Trust was gearing itself to appeal to the wealthier investors who could afford to subscribe £500 a month. My shares were then suddenly worth £80 each and are now well over £300 so no doubt the Trust was very pleased

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mo khan

Apr 29, 2012 at 19:44

Dear Jon Smith,

I think its the investor that are half wits,certainly,Gullible, half wits (me included). RBS cronies know that!. As long the name remains, Royal Bank of Scotland,(RBS), it has no future investment value. Professional Bank Cronies, in order to get high salaries, with blessing of FSA poodles. Banker professional expect that as their god given right but Having Gambled away decades of built up value over night, they now must feed on and have to plunder the investor, the hand that feeds them.

Instead of working hard work They gamble, by share manipulation, which got them here in the first place, not by decent, honest means and trust, of performance value creation in the market place. Who would be an RBS investor? or is it a Gamblers Bank!!...

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snoekie

May 03, 2012 at 02:53

The big con, and yet for those whose execs have bonus packages calculated in shares, rather than money, they will be splitting their sides in glee at all the shares they will get for next to nothing but carry a huge price tag.

Consolidation doesn't reduce the losses of the shareholders, merely window dressing.

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RBS Shareholder

Sep 21, 2012 at 10:08

I fully understand that the value of the holding in RBS will not alter as result of the 1 for 10 split.

However to retain value once dividend payments are resumed, the dividend will have to be 10 times of that before the split. Assuming the dividend would eventually return to previous of say 36 prnce per share - the new dividend would have to be 360 pence per share.

I do not believe that this will be the case - am I being cynical or is there any grounds for believing that the dividend value per share would be maintained.

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Anthony Tinslay

Sep 21, 2012 at 13:14

RBS Shareholder - not a split but a consolidation.. You now have only ONE shares for each TEN previously. Yes all things being equal the dividend would be ten times that before the consolidation. However you are forgetting that the dividend before the consolidation was not 36p but rather NIL. Thus ten times nil is still nit!! The 36p is an historic dividend based on an earlier capital level and since then there has been a massive injection of capital by the Government that has diluted your own shareholding considerably. In essence any dividend declared in the future should be gratefully received

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