About a month ago, I wrote an article about how political decisions in the U.K. are critical to the value of Royal Bank of Scotland Group plc (ADR) (NYSE:RBS). Since then, the political winds have caused a downdraft in shares of RBS as uncertainty continues to surround this 81 percent state-owned institution.
So many plans
Like American politicians, the politicians across the pond do not always see eye to eye, and this resulted in a multitude of plans for managing Royal Bank of Scotland Group plc (ADR) (NYSE:RBS). Some of the plans have included:
A split of RBS into a “good bank” and a “bad bank”
A full nationalization of RBS where the government would purchase remaining privately held shares
A share giveaway whereby citizens of the U.K. would be given shares of Royal Bank of Scotland Group plc (ADR) (NYSE:RBS) so they can benefit from its eventual recovery
Much like the politicians in the U.S., the U.K. politicians have not managed to move along the management of RBS from the status quo. This, in turn, has fueled uncertainty over the future of Royal Bank of Scotland Group plc (ADR) (NYSE:RBS), causing shares to slide back from the heights reached after the subject of re-privatizing the bank was brought up again.
On the preferred side
Common shareholders have has a rough ride over the past few weeks but even Royal Bank of Scotland Group plc (ADR) (NYSE:RBS) preferred shareholders could not escape without losses. At the beginning of June, RBS Series L Preferreds traded around $24 ($1 below liquidation value) but after the increased uncertainty from various politicians, RBS Series L Preferreds have moved down near the $20 mark and currently yield around 7 percent.
It is unclear what, if anything, the government would extract from the preferred shareholders. Most likely the common shares would be impacted to a much greater extent, however losses being forced on preferred shareholders cannot be ruled out. Losses for investors other than common shareholders were imposed in Ireland where Allied Irish Banks junior bond holders were forced to accept a small fraction of what they were owed. However, Royal Bank of Scotland Group plc (ADR) (NYSE:RBS) is in better financial shape than Allied Irish so this is far less likely to happen at RBS.