Royal Bank Of Scotland: Increased Talk Of Preferred Dividends

Apr. 04, 2012 3:04 AM ETNatWest Group plc (NWG)36 Comments
Rubicon Associates profile picture
Rubicon Associates

Back on March 6, 2012, I wrote an article regarding Royal Bank of Scotland's (RBS) preference shares in which I arrived at the following conclusion:

Conclusion: The market is expecting RBS' currently suspended preferreds to begin paying the dividend again. As a result, it is possible to buy shares and end up owning high yield preferred shares with a built in gain.

I do have to stress that no announcement has been made at this time regarding the resumption of dividends on the suspended preference shares. The conclusion has been arrived at utilizing a "mosaic theory" approach looking at current pays, distributable profits, market pricing and peer actions.

I had arrived at this conclusion by observing the preference share prices, market sentiment and developments at Lloyds (LYG). As I expected, there would begin to be traction behind this assertion and we would begin to hear whispers from the company which help announce their intention regarding the preference shares.

Today, the Financial Times reports:

Royal Bank of Scotland is preparing to make its first dividend payment in four years as the state-backed bank attempts to overcome one of a number of obstacles in its path to reprivatisation.

The bank, which is 82 per cent owned by the UK government, is likely to make a £350m-£400m payment to holders of so-called preference shares next month, said people with knowledge of the matter. It is the first payout RBS is entitled to make after an EU ban on the payment of dividends expires at the end of April.

"The cost of not paying this dividend would be far greater than paying it," said one insider at the bank.

ShareCast adds:
LONDON (SHARECAST) - State-owned Royal Bank of Scotland is looking to resume dividend payments to holders of its preference shareholders to signal

This article was written by

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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