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Hand over your cash: how banks are mugging investors

Neil Collins

Wednesday, 21st May 2008

Neil Collins says the rights issues recently announced by RBS, Bradford & Bingley and HBOS are a sign of desperation — and their terms are an insult to loyal shareholders

Both RBS and HBOS are offering shares at deep discounts of more than 40 per cent to the market price. Even on the slashed dividends, the subscribers are getting a yield of around 10 per cent on the new shares (the old ones will fall in value, so don’t think you’re getting something for nothing). No need for that expensive underwriting, then, you might think. You’d be wrong. Both issues are underwritten, even though the share prices would have to collapse afresh to leave the nil-paid shares worthless. There are no realistic circumstances where that could happen. Were the RBS price to fall below 200p, it would have a market value of £33 billion, including the £12 billion of new money, implying a value of the bank before the issue of just £21 billion — about two thirds of what it is today in like-for-like terms. The underwriting commissions, amounting to over £200 million, are simply money for old rope. The payment is a bung to the bankers’ mates in other institutions, and it comes straight out of shareholders’ pockets.

The danger is that they’ll all be at it. Lloyds TSB passed up the chance to join in earlier this month, but Barclays refused to rule it out. Its chairman, Marcus Agius, an immensely experienced and upright City banker, considers the actions of his competitors to be very poor form, so if Barclays does in due course ask for more, we can look forward to better behaviour. Just don’t expect an ounce of contrition from RBS and HBOS.

Neil Collins Is A Columnist For The London Evening Standard.

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Eli

May 29th, 2008 11:01am

Great article and it should be sent straight to the incompetent Fred Goodwin!

City Life

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At last, a fine statue of Brian Clough — but still not even a plaque for Jesse Boot

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Peter Grogan on Britain’s last remaining ‘private bankers’

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Martin Vander Weyer pours a whisky, sits back and observes chaos theory at work in the global markets: it could all end in Mad Max anarchy

Scotland counts the cost of its financial Culloden

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