Swopped your RBS bonds yet ?

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RBS reveals a £4.5bn boost from bond deals




Published Date: 25 April 2009
By Peter MacMahon and Scott Reid


ROYAL Bank of Scotland's flagging finances have received a £4.5 billion boost after the group profited from a bond buyback programme.

The part-nationalised bank will book the gain in its first-half results, due out on 7 August, after completing a complicated three-part bond buy-back programme.

RBS told the stock market yesterday that it expected to make a £4.5bn profit from buyback and exchange offers, further bolstering its efforts to bolster its capital position.

RBS is the latest bank to swap or buy back bonds, taking advantage of deeply discounted prices in the secondary market to improve its capital position.

Other banks to launch debt buybacks include UK rivals Lloyds Banking Group and Standard Chartered and Switzerland's UBS.

RBS was yesterday the leading gainer in the banking sector, with shares closing up nearly 6 per cent, or 1.8p, at 33.3p.

The potential boost to the beleaguered bank's profits will be seen in the City as a further positive indication that RBS is clawing its way back from the financial crisis which threatened its existence.

Yesterday's move is part of the three to five year plan to rebuild the bank which has been put in place by Stephen Hester, who took over from former chief executive Sir Fred Goodwin.

According to RBS, the deal could add 0.7-0.8 percentage points to its core Tier 1 capital adequacy ratio, which was estimated at 12.4 per cent after RBS reduced its risk under the UK government's asset insurance scheme.

In its statement, made an hour before the market shut for the weekend, the bank said 61 per cent of its investors chose to take up the offer to swap £5.75bn Tier 1 and Upper Tier 2 bonds for senior unsecured bonds.

It said 64 per cent of bondholders had opted to participate in its buyback offer for $750 million and 3.25 billion worth of Tier 1 and Upper Tier 2 bonds.

Average take-up for a tender of $8.1bn of $10-denominated bonds was 51 per cent. The deadline for offers was Wednesday.

Tier 2 bonds have become less important as regulators, investors and analysts increasingly focus on building up better quality core Tier 1 capital, which is a bank's main buffer to absorb bad debts.

Nigel Bradshaw, fixed-interest fund manager at LV Asset Management, which held RBS Upper Tier 2 bonds, took up the offer on both the buyback and the exchange offers.

Bradshaw added: "We did have to think harder about doing it. LV decided to accept the offers because of the danger of being left with a very illiquid security after the exchange reduced the amount of outstanding bonds, he said.

Lloyds' debt exchange offer earlier this month saw 67 per cent take-up. Standard Chartered's offer drew 42 per cent interest earlier this week.


The full article contains 488 words and appears in The Scotsman newspaper.
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• Last Updated: 24 April 2009 8:16 PM
• Source: The Scotsman
• Location: Edinburgh