My broker has a target price of 26 p on them and told me to dump all I had on thursday and claim the tax losses. Same goes for Lloyds according to them

FWIW

Decent day today

IMHO things have definitely turned the corner, but shares such as RBS and Lloyds will continue to have dramatic swings due how far away groth is on any given day.

That's what makes these babies so good to trade

While its de-risked the balance sheet, it leaves
RBS very close to full nationalisation. The dilution
will be worth it though if it provides the resolve RBS
needs to begin its recovery. Not only can RBS have
greater confidence in customer lending, but other
banks can have greater confidence in lending to
RBS, which is even more important.
RBS still faces a funding gap. Its customer
loans are greater than its customer deposits
by around £225 billion.
The latest trading update shows that the ratio of
loans to deposits stands at 150%, unchanged from
the previous update. This gap needs to be plugged
from external sources, known as wholesale markets.
Other big financial institutions basically lend RBS
the money to balance their books.
Its easy to forget that around six months ago RBS
almost collapsed as wholesale markets began to
shut the door on RBS. Rolling over wholesale
funding is normally a routine exercise taking just a
few hours. So when RBS was having problems, it
caused panic. If the money hadnt been found
quickly, RBS would have been declared insolvent.
Executives at RBS immediately held crisis talks
with the Bank of England. The Bank of England
decided to hit the phones themselves and reassure
(beg) creditors in New York and Tokyo to keep faith
in RBS. They were buying time. The Treasury then
announced a few days later that it would offer a
state guarantee when British banks borrow from
other banks and financial institutions. The crisis may
have blown over, but the funding gap remains.
Alphabet assets
RBS lost around £1 billion in the first three months
of this year. The investment banking division was
the only real star, almost doubling its profits. Before
you get too excited, the performance is not likely to
be repeated going forward not to mention it is the
same division responsible for a lot of the
impairments.
The retail banking divisions saw profit margins
falling due to low interest rates, rising funding costs
and the need to boost liquidity by holding more lowyielding
gilts. All three of these factors will remain in
place for the foreseeable future. The three foreign
divisions all moved into loss not helpful when
youre trying to sell some of these. Insurance profits
were down, but the division remains a good earner.
Impairments came in at almost £5 billion. The
scary thing is, this scale of write-offs almost feels
normal these days. Management estimate 75% to
85% of the losses relate to assets earmarked for
the APS, but RBS still have to absorb the first £19.5
billion of losses from these toxic assets anyway.
Mr Hester has been busy since taking the helm
having raised more capital, devised a new strategy,

of cutting many jobs, it helps if you give a
downbeat outlook. So dont be put off by the dour
tone of RBS, management are best served being
bearish for now. Likewise dont get carried away
with the hype from green shoot gang. As always,
the truth lies somewhere in the middle.
A look under the hood
The market has largely focused on trying to guess
the book value of the banks, including RBS. This
seems a very narrow view of a banks value. A
bank's book value is the value of its assets minus all
the money it owes to creditors.
Book value just gives a fuzzy snapshot of what a
bank already has on its books. Its like valuing a car
based on its scrap value, rather than trying to value
it as a working car. Most companies, including
banks, would be worth far less if their assets were
simply liquidated. Imagine if you valued Coca Cola
just based on their factories and the stock already
sat in their warehouses. Book value is valuing a
company as dead rather than alive.
Book value misses the real value of a company,
which is to generate profits or cash for shareholders
in the future.
The best way to analyse RBS is at an operating
level and apply reasonable earnings multiples to the
respective business divisions.
The branch networks are the backbone of
the company, selling straightforward
products to individuals and businesses.
The main brands are well established and their
customers tend to stick around. In the UK, the
brands are Natwest, RBS and Ulster which serve
England, Scot land and Nor thern I reland
respectively. In the US, Citizens and Charter One
are also deep-rooted. Margins are healthy, so
impairments in bad times tend to dent profits rather
than swing the division to loss. It may not be
exciting, or offer enormous growth prospects, but it
is solid. The branch networks will continue to be the
biggest generator of profits.
The insurance division is another gem. Its Britain's
second-largest general insurer, the largest provider
of motor cover and is a major player in travel, home
and pet insurance. Direct Line's little red phone and
Churchill's nodding dog are strong brands. The
divisions financial performance has continued to be
solid and it has fat profit margins. Sir Fred tried to
sell it for £7 billion in a desperate effort to avoid
part nationalisation. The sales process has since
been abandoned due to a stalemate on price. The
best bid came in at around £6 billion. In the end,
RBS has held onto the division. Most of the key
business metrics have remained stable throughout
the financial turmoil, which demonstrates the quality
of its earnings.

may be even lower, but we have used a modest
earnings multiple.
Europe and Middle East are sub-scale and have
been even hit harder than the operations in the UK
and US. Profits in 2008 were down 85% on 2007. A
valuation of £1.5 billion looks reasonable.
The Asian operations are up for sale. The division
actually made a small loss last year, but is
positioned in high growth economies. Bids are
rumoured to be coming in near £1 billion, which
looks reasonable.
A value of £6 billion for RBS Insurance looks
conservative. It implies a multiple of 8 times 2008
earnings and the division offers decent growth
prospects. The highest bid for the division also
came in around this level in a distressed market.
Valuing the combined operations of Global Banking
& Markets and Transaction Services is the tough
part. Transaction Services looks a good business,
albeit its reliant on the corporate relationships
which are partly dependent on the Banking &
Markets side. Global Banking & Markets in a
slimmed down form could be more consistent, with
a focus on client services than proprietary trading. If
we assume each part can make £1 billion in profits
and a low multiple of 5 times earnings given the
highly cyclical earnings, this would give a combined
value of £10 billion.

the idea of a being a global player is more about
ego than performance. Not only has it done RBS no
favours, look at Citigroup and AIG as companies
that tried to be all things to all people. Diverse
businesses are harder to manage so there has got
to be a strong justification for the strategy. Having
global reach was meant to spread financial risk, but
in an era of global trade and finance, the benefits of
regional diversity are superficial.
Having looked at the list of the worlds 50
safest banks 2009 (performed by Global
Finance) it jumps out at you that almost all
of them are regional specialists.
Banking is a business of risk. Having a strong
understanding of your core markets seems to be an
advantage. Diversi f icat ion has ended up

It goes against everything some on here believe. They are predicting complete world economic capitulation!

Mikaad, Im not sure where youve got that lot from. It looks a pretty extensive write up...so I've only read some of it, but lets start with the figure for market capitalisation.

RBS peak capitalisation was nowhere near £240bn. Theres plenty of info out there to show that RBS peaked at about ¼ of the figure youve quoted. Type

Mikaad, where did this come from? I'd be very suspicious of any reseach that gets something as fundamental as peak market capitalisation so wrong. LUFC is spot on. The problem is that many people still own the shares and think that since they were once trading at £5 or £6 they are going to recover and go there again. They're not. The share dillution vis a viv. the govt. is massive. And when the govt. does eventually sell what discount to the current price? Right now, I doubt they could sell much above 20p. And to set the record straight as well, whereas, I do trade in and out from time to time, I have no position or interest at the moment and have no inclination to get involved at the current price.

still more than happy with buying in at 32p and think it may be 2 steps forward 1 back but patience will pay off

Late. conversion. (conversion of the b shares).
Good luck.

That's a good point Night Sight. I'm a holder of Lloyds shares rather than RBS, and the 'B' share conversion is more dilutive in their instance on the basis that total conversion would result in about a 77% gov holding, but capped at 75%.....RBS are already closer to that threshold.

When the term of the APS were originally published the media quickly siezed on the full 'B' share conversion issues. It was only in the small print that the restriction to max government holding was limited to 75%.

sorry for the error in my earlier assessment...the dilution effect is therefore more limited...but still undesirable, as there is a caveat!

Yesterday the gov's UKFI admitted that it had been in talks with sovereign welath funds regards the sale of the governments stakes in RBS and Lloyds. So in the first instance they may be looking at a profit on the 15bn shares that were created on the conversion of the £5bn of preference shares @ 31.5p.....offloading these 15bn shares (at a profit), will create headroom in the overall gov shareholding for increased conversion of the 'B' shares...the equivalent to £7.5bn of the 'B' shares.

I trust these soveriegn wealth funds have spotted the potential banana skin and are insisting on anti dilution clauses, which hopefully would revolve around the removal of the automatic 'B' share conversion trigger, or the option to convert as and when the gov wants to.

http://www.galvan.co.uk/ was the source of that so called "research"

:(

Bad few days, nothing dramatic but slow slide

Tut

You are totally correct. Abbey offer free business banking guaranteed forever. If all you want to do is pay money in and take money out the Abbey is the place to be. I do my business banking there and it works perfectly

RBS has got to be very careful!. It is relying on it being too much hassle for people to move accounts. Changing bank accounts is not anice thing to do. I bank with RBS for my personal account and I really like it. Problem is tehy do push their luck sometimes, I know I can get cheaper deals elsewhere but am remaining loyal...for teh time being

buy some more

Have come to the conclusion that this is a pig of a share :(

Better couple of days

Hope you bought some more then!!

Cant do the Smiley face though , sorry. Just imagine it!