The Royal Bank of Scotland (
) must really believe that the global financial markets have gotten
over their mortgage-backed securities jitters. The company recently
issued prime U.K. mortgage-backed securities to the tune of £4.7
billion ($6.1 billion). Its competitors, which includes other
worldwide banking institutions and financial services groups
like Citigroup (
), Barclays (
), UBS (
), Bank of America (
(JPM), will likely be interested in gauging the market's response
to the offering.
Our price estimate for RBS stock stands at
, about 5-10% below the current market price.
What Could this Mean for RBS?
RBS is still reeling under the effects of the financial downturn
which resulted in the nationalization of the bank and a government
bailout. The security issuance helps the company raise much needed
funding by using the loans it hands out to the personal and
Given the fact that RBS has sales & trading assets around
$200 billion, this single $6.1 billion addition does not have a
material impact on the company's stock value.
This does, however, offer an interesting gauge for the
mortgage-backed securities market.
The Issued Securities in Detail
The securities released by RBS can be divided into 3 portions
based on their weighted-average lives (WAL). Each portion has been
further broken-down by currency to target investors by region. The
first portion consists of €893 million ($1.3 billion) and $660
million of notes with a WAL of just under 1 year, priced at 120
basis points (1.2%) above the London Interbank Offered Rate
(LIBOR). The second portion with a WAL of 3.35 years consists of
£644.7 million ($1.05 billion), €538 million ($783 million) and
$400 million in bonds priced at 145 basis points (1.45%) above
LIBOR. The final portion consists of £1.21 billion ($1.97
billion) bonds with a WAL in excess of 5 years at 155 basis
points (1.55%) above LIBOR.
It must be noted that RBS retained the unrated and lower-rated
tranches along with some of the high-rated tranches.
See our full analysis and $13.43 price estimate for