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RBS Fortifies Balance Sheet; to Buy Back GBP4.5B Debt

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In a major move, The Royal Bank of Scotland Group plcRBS initiated offering to buy back as much as £4.5 billion of senior debt, in an effort to trim down its funding costs.

The announced buy back relates to certain securities denominated in sterling, euro and dollar. The offering includes £1.9billion, $2.1billion and €1.3billion of senior notes. The purchase prices are expected to be decided next week and will "reflect a yield to maturity" of the notes on the settlement date.

The Edinburgh-based banking giant stated that through the buyback of debt it "intends to manage its overall liability composition and mix for value. In this regard, it considers future interest expense with reference to its balance sheet whilst maintaining a prudent approach to liquidity and costs."

RBS, which was bailed out with £45 billion by the British government in 2008, has been striving for growth with several restructuring initiatives that include cost reduction measures, scaling back of global operations and increasing focus on core markets, along with improving capital ratios.

The latest move reflects how the company has managed to strengthen its balance sheet since the crisis and has gradually built a solid cash position. Notably, the bank's liquidity coverage ratio, which requires banks to hold adequate cash and liquid assets to cover short-term obligations, was 136% in September 2015, surpassing the 80% requirement under rules of the Bank of England.

We believe that by retiring debt, RBS will not only be able to shrink expensive funding structure and reduce interest expenses, but it will get more flexibility in deploying cash in core activities.

RBS currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the foreign banks space include Banco Macro S.A. BMA , Erste Group Bank AG EBKDY and Grupo Financiero Galicia S.A. GGAL . All three banks sport a Zacks Rank #1 (Strong Buy).

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


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

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