RBS Shares

Ebo

I have some Royal Bank of Scotland shares. I will need to cash them in fairly soon (within 3 months) and wondered if I would be best to do this just now before the rights issue is finalised in early June.

Can anyone offer any advice on this?

thanks

Aegis

It's not really something anyone here can predict easily, nor is it likely to be within the rules for allowable discussion on this forum for someone to explicitly tell you what to do.

Basically it's something you have to decide for yourself based on the balance of probabilities. If you think you'll make more money by holding, then hold. If you are worried about what might happen to the value, or if you think the value might drop with the rights issue, then sell.

I don't really know much about the specifics, so I can't tell you what I think is likely to happen to the share value.

Ebo

thanks aegis but I was thinking of is would the new shares issue dilute my the value of my own shareholding?

Aegis

Ebo wrote: »

thanks aegis but I was thinking of is would the new shares issue dilute my the value of my own shareholding?

If you didn't use or sell your buying rights, then probably yes.

purch

would the new shares issue dilute my the value of my own shareholding?

Almost certainly the answer to that is yes, definately in the short term.

There will be a lot of confuzzlation and volatilty as the rights issue gets closer. Different shareholders and speculators will probably have different tactics amd different expectations as to how the share price will move, and also where it will settle.

It may take some time before the share price is at true value

earlgrey_3

Ebo wrote: »

thanks aegis but I was thinking of is would the new shares issue dilute my the value of my own shareholding?

I suspect there's a lot of confusion about dilution.

After a rights issue there's normally some dilution of earnings. That's because the day to day profits of the business are unchanged, at least initially, but there are more shares for the profits to be divided between. But the money raised from the rights issue doesn't just go into a drawer so what ever it earns from the money markets or wherever also contributes to the earnings. So the change to earnings per share depends on how profitable the business was pre-rights and how the new money can be worked.

In the next couple of days, 9 May I think, the shares go ex-rights so you'll see a fall in the share price to reflect that - just as when shares go ex-div. (So if you want to sell c um-rights you only have till then.)

After that point you'll have the shares plus the rights which can be traded independently a bit like warrants. If you don't take up the rights you can sell them or if you do nothing they'll normally be sold on your behalf by the underwriters and the dosh sent to you.

agent_orange_2

If my sums are correct, here is an example of the price of the shares
from the point of view of someone buying today and intending to take out the rights issue (this will obviously be different if you paid more or less for your shares).
Today you buy 18 shares @ £3.60 (approx price) = £64.80
Your rights issue entitlement of 11 shares @£2.00= £22.00
This makes a total cost of £86.80 for what will be a total of 29 shares,
an average cost of £2.99 per share.
So on the day the rights issue goes to market, you would need the share price to be above £2.99 to be 'in profit'
Where the share price, short term, ends up, is anyones guess. I'm sure, as Purch suggests, speculatators will be employing various methods to try push the odds in their favour - and I don't mean just the odd private investor. You rest assured the 'big boys' will be upto their tricks.

agent_orange_2

earlgrey wrote: »

But the money raised from the rights issue doesn't just go into a drawer so what ever it earns from the money markets or wherever also contributes to the earnings. So the change to earnings per share depends on how profitable the business was pre-rights and how the new money can be worked.

.

I suspect and this is imho, RSB may have a few debts to pay from the extra cash collected. Not to mention the funds they will receive for the now up for sale Direct Line/Churchills insurance. They have, i would guess, been required by the Government to raise funds. But the full scale of their involvement in toxic debt remains unknown by us mere mortals.

earlgrey_3

I was really talking in general terms about how rights issues work rather than specifically about RBS. All that info should be in the proposal document - or not.

There's also going to be a whole lot of other factors that affect how the markets view banks and RBS specifically. Generally speaking though I think rights issues do offer the chance of an accurate re-evaluation because unless there is confidence then the issue fails. Whatever way you look at it, with hindsight, bank shares are now a lot better value than they were a year ago.

agent_orange_2

earlgrey wrote: »

. Whatever way you look at it, with hindsight, bank shares are now a lot better value than they were a year ago.

Yes, you could well be right:D

Browntrout_2

Ebo wrote: »

I have some Royal Bank of Scotland shares. I will need to cash them in fairly soon (within 3 months) and wondered if I would be best to do this just now before the rights issue is finalised in early June.

Can anyone offer any advice on this?

thanks

If you need the cash in three months you should not be in equities. Equity investment is high risk and should only be for the medium - long term.

The value of RBS shares reflects fundamentals and speculation. If anyone on here knows where RBS shares will be in three months please send me a PM 4hrs before they post it!

Think about it, you are looking for the fastest queue at the supermarket tills, can you find one? no because everyone else is doing the same thing. It is the same with shares.