{"id":9904,"date":"2010-02-28T02:35:41","date_gmt":"2010-02-28T06:35:41","guid":{"rendered":"http:\/\/www.prefblog.com\/?p=9904"},"modified":"2010-02-28T02:35:41","modified_gmt":"2010-02-28T06:35:41","slug":"rbs-may-buy-back-preferreds","status":"publish","type":"post","link":"https:\/\/prefblog.com\/?p=9904","title":{"rendered":"RBS May Buy Back Preferreds"},"content":{"rendered":"<p><a href=\"http:\/\/uk.reuters.com\/article\/idUKTRE61O2IJ20100225\">According to Reuters<\/a>:<\/p>\n<blockquote><p> Royal Bank of Scotland is considering a liability management exercise that could see it buy back or convert part of a 14 billion pound pile of preference shares and innovative securities to boost its core capital.<\/p>\n<p>Analysts have said the move could help part-nationalised RBS take advantage of discounted prices in the secondary market to generate a bumper equity gain and boost its core Tier 1 ratio, a key measure of capital strength.<\/p><\/blockquote>\n<p>As a simplified example of how this works, we can look at simplified bank balance sheets:<\/p>\n<div align=\"center\">\n<table border=\"1\">\n<tr>\n<td colspan=\"2\">Bank Balance Sheet<br \/>Before Preferred Buy-Back<\/td>\n<\/tr>\n<tr>\n<td>Assets<\/td>\n<td>Liabilities<\/td>\n<\/tr>\n<tr>\n<td>Cash $10<\/td>\n<td>Deposits $80<\/td>\n<\/tr>\n<tr>\n<td>Loans $90<\/td>\n<td>Preferreds $10<\/td>\n<\/tr>\n<tr>\n<td>&nbsp;<\/td>\n<td>Equity $10<\/td>\n<\/tr>\n<\/table>\n<\/div>\n<p>Assume the preferreds are bought back for half of face value. Then:<\/p>\n<div align=\"center\">\n<table border=\"1\">\n<tr>\n<td colspan=\"2\">Bank Balance Sheet<br \/>After Preferred Buy-Back<\/td>\n<\/tr>\n<tr>\n<td>Assets<\/td>\n<td>Liabilities<\/td>\n<\/tr>\n<tr>\n<td>Cash $5<\/td>\n<td>Deposits $80<\/td>\n<\/tr>\n<tr>\n<td>Loans $90<\/td>\n<td>&nbsp;<\/td>\n<\/tr>\n<tr>\n<td>&nbsp;<\/td>\n<td>Equity $15<\/td>\n<\/tr>\n<\/table>\n<\/div>\n<p>If we further assume that the &#8220;Loans&#8221; have a Risk-Weight of 1, then:<br \/>\na) The Tangible Common Equity Ratio has increased from 11% to 17%<br \/>\nb) The Tier 1 Ratio has declined from 22% to 17%<br \/>\nc) The bank has booked a profit of $5<\/p>\n","protected":false},"excerpt":{"rendered":"<p>According to Reuters: Royal Bank of Scotland is considering a liability management exercise that could see it buy back or convert part of a 14 billion pound pile of preference shares and innovative securities to &hellip;<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[16],"tags":[],"class_list":["post-9904","post","type-post","status-publish","format-standard","hentry","category-miscellaneous-news"],"_links":{"self":[{"href":"https:\/\/prefblog.com\/index.php?rest_route=\/wp\/v2\/posts\/9904","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/prefblog.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/prefblog.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/prefblog.com\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/prefblog.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=9904"}],"version-history":[{"count":0,"href":"https:\/\/prefblog.com\/index.php?rest_route=\/wp\/v2\/posts\/9904\/revisions"}],"wp:attachment":[{"href":"https:\/\/prefblog.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=9904"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/prefblog.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=9904"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/prefblog.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=9904"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}