RBS rights issue march 2009

Generali

malima wrote: »

I received a letter today offering me the chance to buy "open shares".
Please can someone tell me what it is, and do i need to reply, whether i buy or not?
TIA
Malima

It's worth buying if you think the market price for shares will be greater than the rights issue price when the date that you buy the new shares comes around.

FWIW, my opinion is that it's not worth taking up the offer to buy the new shares but to be diluted instead. Better still to sell the shares and buy something worthwhile like some chocolate or a beer.

Thrugelmir

bubblesmoney wrote: »

we received the form for the RBS rights issue yesterday. i thought rights issue pricing was always cheaper than the market price. dont know what they are smoking but guess what they are offering shares at 31.75pence while the present rbs share price on the open market is 24pence now. so they expect a premium of nearly 25% of present market price, they wont have many takers as people can buy for less directly on the market instead.

but the issue is underwritten by the HM treasury so any unsold shares will be bought by the treasury for the 25% inflated price. why the !!!! is the govt paying a 25% premium for buying more troubled assets. it is a 3:7 open offer rights issue but people can buy more if they wish on the form. offer closes at 11am on april 7. nearly 17 billion new shares are being issued under the new rights issue, so the present share price is bound to get hammered even more.

Why is the present share price bound to get hammered even more? As the Government is currently a passive investor ie non trading. There will still be the same number of tradeable shares in the market. Now that RBS has been cleaned up with the removal of toxic debt there will be a point in which it will be worth investing again in the banking sector.

kennyboy66_2

Generali wrote: »

If the issuer of the new stock will just sell at the market price then it's pointless paying an underwriter. The issuer might as well just create and sell new shares and save the money.

Of course this isn't really a rights issue, it's a way of HM Govt putting more money into RBS. It's just a nice, Let's Pretend way of making everyone think this is just normal rather than another ledger entry into the accounts of HM Screwup PLC.

Common G. you know full well that the real reason they do it this way is in order to comply with the Companies Act 1985 - and quite right too.

Imagine the furore if the Government just took shares in companies without other shareholders enjoying the same rights. Free marketeers would be apoplectic and comparing the UK to Russia's casino capitalism.

Generali

kennyboy66 wrote: »

Common G. you know full well that the real reason they do it this way is in order to comply with the Companies Act 1985 - and quite right too.

Imagine the furore if the Government just took shares in companies without other shareholders enjoying the same rights. Free marketeers would be apoplectic and comparing the UK to Russia's casino capitalism.

TBH, I'm not that hot on corporate actions. I'll take your word for it.

I'm sure you agree that any shareholder would be better off leaving the Government to take up their obligation!

The rules in Russia are amazing. For example, a Russian company can announce a dividend and then unanounce it within 12 months and so not pay it.

SGE1

Generali wrote: »

It amazes me that the bank bailout is so popular right across the world.

Those people screwed up monumentally so the popular policy response is to pay off the bosses handsomely and borrow money from our kids to bail out the failed institutions and shareholders?

Madness.

Because the alternative is so attractive? A vicious cycle of bank failure, run on banks, more bank failures, more unemployment, even less access to credit, more business failures, more unemployment... you get the picture.

I don't think anyone believes bailouts to be fabulous, I think most people believe it to be the lesser of two evils.

Generali

SGE1 wrote: »

Because the alternative is so attractive? A vicious cycle of bank failure, run on banks, more bank failures, more unemployment, even less access to credit, more business failures, more unemployment... you get the picture.

I don't think anyone believes bailouts to be fabulous, I think most people believe it to be the lesser of two evils.

I'd rather the Government had spent the money on a replacement bank rather than bailing out the insolvent.

I also realise I'm in a minority.

Oh well.

kabayiri

Generali wrote: »

It amazes me that the bank bailout is so popular right across the world.

Those people screwed up monumentally so the popular policy response is to pay off the bosses handsomely and borrow money from our kids to bail out the failed institutions and shareholders?

Madness.

The campaign 'bail out the banks or else armageddon' was possibly the most successful advertisement ever.

I mean....practically everyone has bought into it, without detailed questioning....

Have a watch of The Renegade Economist interview with Michael Hudson on YouTube. It makes for thought provoking viewing, even if you disagree with his conclusions.

What can not be argued against is the fact that these massive bailouts have allowed many a wealthy investor to deleverage their positions.

How convenient, some would say.

bubblesmoney

Thrugelmir wrote: »

Why is the present share price bound to get hammered even more? As the Government is currently a passive investor ie non trading. There will still be the same number of tradeable shares in the market. Now that RBS has been cleaned up with the removal of toxic debt there will be a point in which it will be worth investing again in the banking sector.

lets say something is worth 1million pounds and they have 1million issued shares. lets say they make a loss of 1million and potentially are insolvent but creative accounting in the form of level 3 'assets' and govt encourages this screwing of the tax payers by this creative accounting.

obviously no one is buying into the level 3 mark to model value of these so called assets. if indeed they were valued nearly as much as what the level 3 assets are valued at (by mark to model method) then many people would have been falling over each other to buy them at a discount of 10% even during a credit crunch or atleast the other banks not up the creek could make cheaper aquisitions by buying other banks with these assets. the fact that these assets havent yet found a buyer means that these banks are still not cleaned from the toxic stuff. plus now there will be more share holders for the same amount of assets. so my guess is the share price will fall.

doesnt the share price usually fall after most rights issues? there will be a point when one can invest in banks but right now is risky and just gambling and not investing.

ad44downey

How many right issues/open offers has RBS had now? And everyone has been a mug trap.

bubblesmoney

SGE1 wrote: »

Because the alternative is so attractive? A vicious cycle of bank failure, run on banks, more bank failures, more unemployment, even less access to credit, more business failures, more unemployment... you get the picture.

I don't think anyone believes bailouts to be fabulous, I think most people believe it to be the lesser of two evils.

credit neednt necessarily have to be given out by the troubled banks. the system just needs banks for credit for businesses etc. that purpose can be achieved by setting up a good bank by the money used for bailouts. lets say they use the 500billion to capitalise a new bank, then if they are allowed 10% fractional reserve banking then they could lend 5trillion in loans. surely that would sort the credit situation. and also the bad banks would go bust and shareholders bear the losses and bond holders get screwed as well for buying bonds of !!!!!! banks, this way the losses dont come on to tax payers books. plans can be made to sell of the branches with employees to the new good bank without the debts at fire sale prices. overnight the shareholders get screwed, the big bond holders get screwed, the sovereign funds get screwed, but employees keep their jobs, banks still open, plus 5 trillion lending capacity still available.

on the other hand these bailouts just bailout the bad investments of the bad banks and also shareholders and bond holders and the money doesnt get lent out. it just makes the losses lesser for the people with big money. isnt that what happened at AIG etc where the bailout money of AIG went to goldmansachs etc.

also i wonder if the govt has actually asked for the share certificates for the shares they already purchased earlier. in the usa i gathered from some blogs that these bloody banks hadnt delivered the shares to the govt and hence were free to lend it to others for short selling etc!!! so now to clip their wings the usa govt is calling in their shares so that these cant be lent for short selling purposes. wonder if the same happens in the uk as well. so they were using govt funds for loaning the govt shares to shortsellers so in effect the tax payer was funding short sellers and getting screwed courtesy of the bailed out financial institutions management!