Help with shares

kk3004

Okay so I got my letter from RBS about the sub-division and consolidation by RBS.

The way I understand it. I have 2500 shares. at 25.53 per share at end of friday.

My 2500 will become 250, at a value of £1 each.
So the way RBS say it is that my proportinate share in RBS wont change. But my value in real terms is going down dramatically.

The point where im confused is that people say in consolidation the share price is meant to in theory go up 10 times as there are only a 1/10 of shares in circulation. But firstly why is the nominal value going to be £1, if they are expecting a higher real value. Then how can it be expected to increase in value if they are deferring i.e. writing off. 60% of the share value??


Can anyone please explain objectively, if this is just a cosmetic exercise? Is the nominal resale share price of £1 meant to go up?

I have no idea to weather to sell my shares now. What are people doing with their shares?

sabretoothtigger

It is just cosmetic but do you have an online link to read?
The market sets the price, its called the market capitalisation. It wouldn't matter if the company had no shares or 700 trillion, the company is making the same profits.
Its just schematics


I think they split shares previously, so that is oppisite to what they do now
RBS does not decide the price, the market cap all they do now is alter # of shares

kk3004

Ok I get it now, so hopefully when market capitalization occurs I will hopefully have a similar cash value of my shares.

But I still dont get why they are deferring 15p on the share. There basically taking 15p per share off everybody with no reason????? I fail to see how the deferring helps

w3stham

So if I have 1000 shares at 25p = £250 value

If i consolidate, and I have 100 shares at £2.50 = £250 value

If I reduce the value of my share to £1 (from £2.50), I have 100 shares at £1 each = £100 value

That's basic maths isn't it?

Regardless of the net value of the company staying the same, my investment has lost 60%.

gkerr4

this isn't a big deal - it's a share consolidation - you have 1000 @25p and soon you will have a 100 at 250p - its honestly no change

- the Nominal value of the shares means nothing to investors. just roll with it.

w3stham

I ca't understand.

I have invested £5000 in RBS shares

I accept the consolidation aspect, = still £5000

But when the second part happens (splitting the shares into 2 types) the share price of my ordinary shares (which will be the only remaining shares after the deferred have been zero'd) changes from £2.50 to £1, I will loose 60% of my investment lump sum.

At what point will I have £5000 of assets after the proposed changes??

w3stham

If the objective was just to make the share value be £1 each, then you would just consolidate 4:1 and job done.

The fact that 60%of the share value (£1 instead of £2.50) will be wiped away will greatly affect accounting statistics:
The share price to earnings ratio will look 250% better
The share price to net book value will look 250% better

If you left it at this state, the market would naturally drag the share price up to the assumed value of £2.50 over a very short period of time.

However, if some forces (RBS / Government?) were to announce some whizzy accounting stuff straight after the consolidation (say over the weekend whilst markets couldn't react) then the ordinary shares my well stay at 10 for a long time, as it would be the correct value in relation to earnings/NBV

srcandas

In January I bought 789 Tesco 5p shares at £3.19 each.

In March I sold 789 Tesco 5p shares at £3.38 each.

In April I bought 789 Tesco 5p shares at £3.21 each.

In April I bought 790 Tesco 5p shares at £3.19 each.

The 5p price tag relates to the primary market (where companies raise capital). The £3+ price relates to the secondary market (where I buy and sell shares).

I don't really care what the primary market price is. They could call them all 1 guinea or 1 groat shares if they like. I only care that my share, as a percentage of the company remains the same, or that if it gets smaller that the company increases capital to compensate me.

The market demands that Tesco, and all the other big orgs like RBS, live within strict rules to ensure shareholders are protected.

So in conclusion as I see it:

1. The primary market price is not relevant to me as long as I know what I am buying. And the way I know what I am buying is based on the secondary trading in the shares.
2. I buy and sell in the secondary market like all the other big and little fish. This price is based on emotion, global sentiment, reaction to press announcements, et al.

Well that's my understanding so w3estham I think you either need to get the books out and really study the subject (I've been doing that and it is interesting) or just accept you are in the secondary market and enjoy the ride. I reckon at some point with your investment you will be smiling. Just don't know when.

:beer:

w3stham

OK thanks, but in summary for my very basic brain , if I sell my shares on June 1st, will they be worth £1 each or £2.50 each?

So they are just called '£1 ordinary shares' but what is the value if I sell then as opposed to selling now?

srcandas

w3stham wrote: »

OK thanks, but in summary for my very basic brain , if I sell my shares on June 1st, will they be worth £1 each or £2.50 each?

So they are just called '£1 ordinary shares' but what is the value if I sell then as opposed to selling now?

Everything I know tells me they will be, all things being equal, exactly 10 times the closing value before the change (I assume they do it while the market is closed).

So if we consider the current price they are £0.239 so would become £2.39 (allowing for any movements created by closed market trading). Clearly the number of shares would be reduced by a factor of 10.

I imagine they have a plan to raise more capital (in the primary market) and a price of £1 looks more attractive. As a share holder you will normally get the chance to buy your proportion of these new shares.

Or possibly the change is related to the following tradable entities:


B281MK2 -- Spon ADR Repr Prf SHS Ser T
B3D1NN4 -- ADR Each Repr 1 Ser 'R' Preference Share USD
2123347 -- Spons ADR each repr 8.5% Pref Ser F
B031HX1 -- ADR Each Repr 1 Pref Ser L
2386612 -- GDR Each Rep 1 Pref Ser H LVL111
B1Z83T5 -- Spon ADR Repr Prf Series S
RBSU -- Non PP Notes 01//02//2018

in addition to what I assume you own:

RBS -- Ordinary 25p

As someone said earlier this change does have costs associated with it (in administration if nothing else) but equally it is a sign that the RBS management have some sort of plan and see a future. But those thoughts will already be factored into the price.

I must admit I am not jumping into RBS but I guess it is the next set of announcements that will be interesting. But that needs to be weighed against the current moves in Spain to rescue Bankia and to create a toxic bank which will lead to Spanish banks coming clean with the value of some of the debts (which some believe have artificially high book values). Could that impact European banking shares ??

But all part of the fun of investing.

Note: I am an amateur but getting better read, informed and experienced by the minute