trending Market Intelligence /marketintelligence/en/news-insights/trending/RXFfJKRGc1Bm7_FIqRPegg2 content esgSubNav
In This List

RBS sale delayed by management changes, market risks, say analysts

Podcast

Street Talk Episode 87

Blog

A New Dawn for European Bank M&A Top 5 Trends

Blog

Insight Weekly: US banks' loan growth; record share buybacks; utility M&A outlook

Blog

Banking Essentials Newsletter 2021: December Edition


RBS sale delayed by management changes, market risks, say analysts

After initial market enthusiasm about a potentially imminent sale of Royal Bank of Scotland Group PLC stock by the British government, analysts now expect the disposal to begin in August, giving the bank time to name a new top management team and letting the markets cool after volatility driven by trade conflicts, Italian political risks and Brexit negotiations.

The British government owns 71.3% of RBS, having bought in at 502 pence per share to save the bank at the height of the financial crisis and sold a 5.4% stake in 2015 at a loss of £1.1 billion to the public. RBS shares closed at 279.30 pence in London trading June 1.

CFO Ewen Stevenson has been recruited by rival HSBC Holdings PLC, according to multiple reports in the British media citing inside sources. No successor has been named yet.

Meanwhile, European equity markets have been in a state of heightened volatility as political turmoil in Italy has cast doubts on the recovery of one of the biggest economies in the eurozone.

Considering these circumstances, the British government may fetch a better price for its holdings in RBS if it chooses to hold off selling until later in 2018, after the bank announces its first-half earnings on Aug. 3, said two analysts.

Despite the insistence of CEO Ross McEwan that he will remain in his position until 2020, "the resignation of the CFO serves to remind that the CEO is on the way out soon," John Cronin, an analyst with Irish stockbroker Goodbody, said in an email.

"This instability will certainly impinge on the government's ability to sell stock. Prior to this week's news around the CFO resigning and the market rout, I expected that [the treasury] was going to sell 10% via an ABB either this week or next week," he added, referring to an accelerated bookbuild, whereby only a small number of institutional investors are allowed to buy in.

"Now I don't see the treasury move until there is clarity in terms of who will succeed the CEO and CFO. So, Stevenson's resignation effectively accelerates McEwan's exit in my view. I can't see [the treasury] move to sell stock until September at the earliest now — and then it will depend on market conditions being receptive, of course. I think any bookbuild plans will be shelved, and when the government finally goes to sell the stock, I suspect the base-case plan will be to sell a 25% block and get the shareholding down to under 50%."

A key meeting between the British government and EU representatives to discuss Brexit at the end of June would also likely shake up the stock market, providing another reason to wait, Cronin had said in a previous note.

Government to launch sale 'almost certainly this year'

The treasury set out a plan in 2017 to sell around £15 billion worth of RBS shares — or about two thirds of its stake — by the end of the 2018-2019 fiscal year. A government source confirmed that this aim still stands.

"Ewen's departure has seemingly knocked the price by 1-2% ... not overly material but might conceivably have impacted the Government's timetable IF they were close to pressing the button," Ian Gordon, a U.K. banks analyst at Investec in London, said in an email. "I think it is all just about market timing and price. I expect the Government to re-start its selldown with an ABB of (say) £2-3bn, presumably timed to take advantage of any market strength," he added, forecasting that a move would take place "almost certainly this year."

Gordon added that a sale during the summer should not be ruled out, but given market turbulence it was more likely to happen between September and November.

The credit ratings of several companies in the RBS group were upgraded on May 31 by S&P Global Ratings.

Berenberg's Peter Richardson, who issued a buy rating for RBS stock, wrote that the bank is in a position to pay "material excess capital" back to shareholders after settling its crisis-era mortgage miss-selling case with the U.S. Department of Justice in May. He estimated that net of legal costs and regulatory provisions, the bank still has about £5 billion of spare cash that it might distribute to investors via dividends or share buybacks.

"We are sanguine about potential headwinds from the U.K. government's stake," said Richardson in a report. "In the short term we believe RBS will restart ordinary dividends and pay material special dividends during 2018."

S&P Global Market Intelligence and S&P Global Ratings are owned by S&P Global Inc.