Royal Bank Of Scotland: Preferreds Should Resume Dividends

Mar. 06, 2012 9:55 AM ETNatWest Group plc (NWG)LYG8 Comments
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Rubicon Associates

It was a dark and stormy night ... Well, perhaps not, but that is, assuredly, the way it felt to holders of certain series of Royal Bank of Scotland (RBS) preference shares when they were notified that their share dividends would be suspended.

The list (at the time called "may pays") consisted of the following issues:

6.40% Non-cumulative preference shares Series M
6.35% Non-cumulative preference shares Series N
6.25% Non-cumulative preference shares Series P
6.75% Non-cumulative preference shares Series Q
6.125% Non-cumulative preference shares Series R
6.60% Non-cumulative preference shares Series S
7.25% Non-cumulative preference shares Series T

Recall that RBS was in dire straits and required a massive bailout by the government. The bailout came with strings attached, and one of them was that certain series of preferred (preference) stock would stop paying their dividend for a period of two years. Specifically (emphasis mine, document here):

On 26 November 2009, RBSG also entered into a State Aid Commitment Deed with HM Treasury containing commitments and undertakings given by RBSG to HM Treasury that are designed to ensure that HM Treasury is able to comply with the commitments to be given by it to the European Commission for the purposes of obtaining State aid approval.

As part of these commitments, RBSG has agreed (subject to approval by the EU College of Commissioners) that, unless otherwise agreed, neither RBSG nor any of its direct or indirect subsidiaries (excluding any companies in the future RBS Holdings N.V. group) will pay investors any dividends or coupons on existing hybrid capital instruments (including preference shares, B shares and upper and lower tier-2 instruments) from a date starting not later than 30 April 2010 and for a period of two years thereafter (the "Deferral Period") or exercise any call rights in relation to the same between 24

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Rubicon Associates profile picture
Rubicon Associates is headed by a Chartered Financial Analyst charter holder with over 20 years of experience in the investment management industry focused on the analysis, investment and management of fixed income and preferred stock portfolios. Over the years, he has analyzed and invested in both public and private companies around the world as well as advised institutional clients on fixed income strategies and manager selection. The principal has been responsible for managing nearly seven billion dollars in credit investments across the capital structure and overseeing the research and trading of credit market activities. Rubicon Associates has written for Seeking Alpha, Learn Bonds, a newsletter and in addition to advising institutional and private investors.

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