Breaking Free from Toxic Asset Scheme
Breaking Free from Toxic Asset Scheme
Royal Bank of Scotland
I have just been reading the Financial Times and there’s an interesting piece on RBS and Lloyds. It says that RBS are making a last minute deal to break free from the toxic asset scheme.
It also says that the bank won’t have to pay the £17.5bn fee, however they have to sell off some of the following areas.
- Insurance Arm – Includes brands such as Direct Line, Churchill, Green Flag.
- 300 RBS Branded Branches in England and Wales.
Now what effect will these large sell offs have on the Business and Its share price?
- Now I’m no expert but I think it’s going to be a tricky one to try and guess. On one hand the selling of these divisions would generate large amounts of capital for the bank and therefore will balance their books and help to improve the bank’s situation, but on the other hand they will be losing big brands and so the company will be worth less?
The Share Price is also a big part of the equation, the bank has done a massive rights issue (increasing supply of shares in circulation) as it is which along with bad debt has been the reason for the fall in share price. Now if the big brands are sold off, the company will be worth less and so will the share price fall further?
- But the argument on the other side is that they will have generated large amounts of capital from the sale of the bands.
I think it’s going to depend on how well the Bank is able to invest and use that capital to generate a return from it. Do you have faith? – I think that value will return to the Bank in many years to come and so this will be an investment for the very very long-run.
Lloyds TSB
Lloyds are looking at selling the Scotland arm of the business as well as Cheltenham and Gloucester.
They are also likely to be able to break from the Government scheme if they are able to raise enough capital to help balance their books.
They’re looking at raising the capital from a number of areas including the biggest ever rights issue!
So perhaps Lloyds is in a better position than RBS but who can tell until the divisions get valued and estimates get made.
