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Fate Of Rbs

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I'd be very surprised if it wasn't sold off before the next election.

Reuters 23/3/13

'(Reuters) - A sale of the government's $107 billion (65 billion pound) stake in Lloyds Banking Group and RBS may start next year, Bloomberg said, citing four people familiar with the matter.

The government may offload its stake in Lloyds first as the London-based bank is better prepared for a sale, while RBS may return to majority private ownership by the end of 2014, the people told the agency.'

Edited by Sancho Panza

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Vince Cable is waging war against RBS. He said in Feb that it should have been nationalised, and he's constantly criticising them for SME lending, past and future.

I know early this year RBS took back a lot of SME bad loans they had hived off into subsidiaries. I guess that was done if not by order of the treasury then with its approval. Not sure what that suggests.

It's such a monumental mess that nothing can be done before the election, and if Cable comes back in the next government he will break it up.

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Ha ha ha, the repor in Ireland are just starting you guys are going to sink a lot of your tax money into Ulster Bank on write-downs and those trackers that will be losing money every month for the next 30 years.

Ireland will never buy back Ulster Banks, they would not even take it back for €1 billion as it is a liability.

Have a good evening. :lol:

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They can't sell it whole because the mortgage book is stuffed full of crap. But they absolutely will sell part of it before the GE. Part-privatisation means nothing economically, its significance is entirely political. The Tories will advertise the sale as a demonstration of their economic competence and hard-headedness, invoking the memory of Margaret Thatcher. Risible, of course, but the yellow press will lap it up.

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They could sell it off as is, if they were prepared to wait till 2040-50.

But they aren't that patient. If they want to go pre-election then the bad bank will be incredibly toxic and quite large so they may not want to on detailed inspection and planning. Successfully of loading HBoS and focusing on that would be much more sensible. I suspect if they do want to flog it off then, they will be very mininalist on the write downs to make it sound better upfront with the more losses from the future bad bank growing over time as a result.

Edited by koala_bear

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Where's the option for the "highly" profitable bit to be sold off whilst the UK taxpayers gets left with a giant turd to polish?

My reckoning was that splitting the bank needs to happen first in order to create a profitable bank and a turd, (though the possibility remains that RBS is all turd).

If they split it before the election, then they'll indicate an intention to sell the profitable bank created at the same time and I assume that the terms of the split will ensure that the good bank can be sold, and the need to make the good bank saleable will determine the exact turdiness of the turdy bad bank created.

I think that they won't split it; my reasoning is that the problems that they had off loading part of Lloyds show that there is no appetite for the crap mortgage books from UK banks, (which is why I remain firmly sceptical about talk of recovery). My opinion regarding whether it can be sold as is follows from the same assumptions.

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It is fairly clear from reading the news that the government is actively looking at the good bank/bad bank options. After all, once you strip away the crap in the investment bank and the losses in Ireland, there is a fairly strong retail and corporate banking franchise in RBS. The crap should be gathered together and run down. The good assets repackaged and floated. The proceeds would support the bad bank and possibly provide the government with some much needed revenue.

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My reckoning was that splitting the bank needs to happen first in order to create a profitable bank and a turd, (though the possibility remains that RBS is all turd).

If they split it before the election, then they'll indicate an intention to sell the profitable bank created at the same time and I assume that the terms of the split will ensure that the good bank can be sold, and the need to make the good bank saleable will determine the exact turdiness of the turdy bad bank created.

I think that they won't split it; my reasoning is that the problems that they had off loading part of Lloyds show that there is no appetite for the crap mortgage books from UK banks, (which is why I remain firmly sceptical about talk of recovery). My opinion regarding whether it can be sold as is follows from the same assumptions.

Largely agree but would disagrree on "(though the possibility remains that RBS is all turd)" bit.

Even in the worst case I would expect 40% to be made into a reasonably profitable good bank. (Any retained units will have to be a reasonable size to be run profitably

The 2 core issues remaining with RBS are:

- long term unprofitable (but performing) assets they haven't been able to off load yet that still require cash input to cover losses (e.g. the loss making ulster bank 30 year mortgages with 20-25 years left to run where the borrowers are effectively trapped). Transfer to bad bank.

- not yet writing down properly assets that have already gone bad i.e. shuffling repossessions on to a subsidiary in a tax haven until they can be used to make loss and an appropriate time for tax or political purposes, in the first case dripped out at a rate to minimise an tax payable and in the second case as small as possible so there aren't any headlines. Admitting to these would pump up the RBS share price. Write down pre good / bad bank split.

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Largely agree but would disagrree on "(though the possibility remains that RBS is all turd)" bit.

Even in the worst case I would expect 40% to be made into a reasonably profitable good bank.

Fair comment, KB. I was just trying to acknowledge all possibilities and be drole!

It seems only reasonable that RBS must have made some good loans. Being wrong all the time requires the same impossible genius as being right all the time.

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They can't sell it whole because the mortgage book is stuffed full of crap.

Is the mortgage book full of crap? I don't remember them being a major player in the mortgage business so I'd be surprised if they found themselves in that situation, did they have a lot of subsidiaries trading in different names in the sub-prime market?

I always thought the problem with RBS was that it simply grew too big then spent stupid money on acquiring ABN Amro. Am I wrong?

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Re the original question.

Any disposal will have to be in tranches and over several if not many years. The company is just too huge to go straight to market all in one go.

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Re the original question.

Any disposal will have to be in tranches and over several if not many years. The company is just too huge to go straight to market all in one go.

Agreed even Lloyds will need several tranches, I suspect RBS may take at least 2 years from the initial sale of gov't owned shares.

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Is the mortgage book full of crap? I don't remember them being a major player in the mortgage business so I'd be surprised if they found themselves in that situation, did they have a lot of subsidiaries trading in different names in the sub-prime market?

I always thought the problem with RBS was that it simply grew too big then spent stupid money on acquiring ABN Amro. Am I wrong?

That is half the story - the other bit was lax lending standards so there is a reasonable amount of crap corporate (which always seems to mean a large amount of CRE...) and mortgage lending.

This could be covered by your growing to big too quickly i.e. not enough supervision and the temptation to lend big to make meeting growth targets easier. I.e. over optimistic valuations/ valuation models?

ABN was the straw that broke the camel's back so it was easy to blame the fall on the acquisition on nightmares hidden in a foreign bank they bought rather than their own lending decisions or the UK regulator not keeping an eye on them.

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interesting RBS story on sky:

http://news.sky.com/story/1126807/rbs-gets-heated-over-230m-radiator-deal

RBS left holding equity in a company after the PE "owner" could no longer meet the loan covenants after a badly timed refinance at the peak in 2007 (original deal was 2005).

Apparently plenty more cases like this too.

RBS appear to need to find every last penny they can from it? Even if it costs them more to extract it?

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interesting RBS story on sky:

http://news.sky.com/...m-radiator-deal

RBS left holding equity in a company after the PE "owner" could no longer meet the loan covenants after a badly timed refinance at the peak in 2007 (original deal was 2005).

Apparently plenty more cases like this too.

RBS appear to need to find every last penny they can from it? Even if it costs them more to extract it?

Not clear how RBS got its claws on the equity - I guess by their gangster sales team who pushed interest rate swaps.

The sooner RBS vapourises in a nuclear cloud the better.

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Not clear how RBS got its claws on the equity - I guess by their gangster sales team who pushed interest rate swaps.

The sooner RBS vapourises in a nuclear cloud the better.

Simples:

(from the sky article)

That investment went awry after Warburg Pincus refinanced Ideal Stelrad at the height of the debt boom in 2007. The company then breached its borrowing agreements and underwent a financial restructuring that culminated in a debt-for-equity swap.

i.e. the banks (RBS 15%, BoI 5%, BNPParibas all mentioned + more as banks ended up most of the equity) "repossessed" the firm due to the covenant breach on the loan. The most well known recent example would be HMV.

The BTL mortgage equivalent would be along the lines of the property price crashing so the effective LTV went over 100% and the market rent being less than the month mortgage payments, allowing the bank to repo.

IR swaps probably not material in this case. Lack of new build or refurbishment and hence lower radiator sales being the reason.

Edited by koala_bear

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Simples:

(from the sky article)

i.e. the banks (RBS 15%, BoI 5%, BNPParibas all mentioned + more as banks ended up most of the equity) "repossessed" the firm due to the covenant breach on the loan. The most well known recent example would be HMV.

The BTL mortgage equivalent would be along the lines of the property price crashing so the effective LTV went over 100% and the market rent being less than the month mortgage payments, allowing the bank to repo.

IR swaps probably not material in this case. Lack of new build or refurbishment and hence lower radiator sales being the reason.

Hmmm - refinancing at the height of the bubble almost certainly means IR swaps that would have led very quickly to extortionate payments to banker weirdos.

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Hmmm - refinancing at the height of the bubble almost certainly means IR swaps that would have led very quickly to extortionate payments to banker weirdos.

The payments on PE debt (particularly the lower tier debt) tended to be extortionate before including the effect of any swaps...

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Max Keiser - Episode 480

Mentions Lloyds sale price, why does the MSN and Gov't ignore inflation on the deal?

Max says he'll eat his shorts on the show if the UK housing market doesn't blow up in 24 months.

LOL He's proper coked up but always good for a laugh.

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We have an answer, I thinks:

Royal Bank of Scotland will not be back in private sector hands for another five years, Vince Cable has warned.

The business secretary dashed hopes entertained by chancellor George Osborne and RBS chairman Sir Philip Hampton that the sell-off could begin before the next general election in 2015.

He described the prospect of it happening within five years as ‘unrealistic’

.

http://www.thisismoney.co.uk/money/markets/article-2389395/No-RBS-sell-years-warns-Vince-Cable-increasing-chances-bank-broken-up.html

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We have an answer, I thinks:

.

http://www.thisismon...-broken-up.html

So 2 conflicting views 18 months vs 5 years in the government. We can safely (baring another big financial crisis) say it will lie in between.

So they will keep down sizing by flogging bits and "assets" off like they have been doing for another few years on the investment bank side, then do a good bank / bad bank split as required just before flogging the good bit a a politically expedient moment.

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