RBS’s recapitalization seen renewing bank sector writedown concerns
Posted by: in HousingFiled under: International markets, Bad news, Housing
Royal Bank of Scotland stated it will sell 12 billion pounds or $23.9 billion worth of new shares to boost capital, Bloomberg News reported Tuesday.
RBS (NYSE: RBS) has suffered from capital depletion following loan and related credit mark-downs, and as a result of its $114 billion purchase with Banco Santander (NYSE: SAN) and Fortis of ABN Amro.
Shares of RBS fell 30 cents to $7.19 on the news in Tuesday morning trading. Shares have declined more than 45% since October 2007.
RBS stated it expects a massive increase in the expected losses it faces on its portfolio of poorly performing loans and assets, including U.S. subprime mortgages and leveraged loans to private equity deals, The Financial Times reported Tuesday. The bank said these additional writedowns would reach about $11.8 billion — three times the losses the bank has already recorded.
Worst not behind banks?
C. Leonard Bauer, independent stock analyst, told BloggingStocks Tuesday RBS’s re-capitalization decision will renew concerns that the worst of the mortgage and related asset-backed default issue might not be behind the major banks. “For about a week the market was riding a wave of decent karma after Citigroup’s latest writedown wasn’t as bad as expected. It provided investors with the hope that the second wave of writedowns wouldn’t be as large as the first,” Bauer stated. “Now, I’m not so sure.” Bauer added that he does not have a rating on RBS, nor own any of the bank’s shares.
Bauer added that because many had previously believed RBS had enough capital, the bank’s announcement will probably raise concerns of additional mark-downs in the U.K.’s banking sector. RBS is Britain’s second largest bank.
“The RBS news is like a shot to the body. It’s a shareholder hit, U.K. regional economy hit, and a hit to the global economy,” Bauer stated. “In terms of the mortgage writedown issue we’re not where we were in January [2008], but RBS’s announcement does raise additional questions about banking sector health heading into the third quarter.”
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