RBS Takes Step Forward with $6.1 Billion MBS Issuance


The Royal Bank of Scotland ( RBS ) Group ( RBS ) 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 ( C ), Barclays ( BCS ), UBS ( UBS ), Bank of America ( BAC ) and JPMorgan Chase (JPM), will likely be interested in gauging the market's response to the offering.

Our price estimate for RBS stock stands at $13.43 , 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 commercial segments.

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 RBS

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ, Inc.

This article appears in: Investing , Investing Ideas , Stocks , US Markets

Referenced Stocks: BAC , BCS , C , RBS , UBS



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