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RBS - was the bottom plumbed on July 16?

According to Morgan Stanley it was.

Writing on Friday, analyst Michael Helsby claimed the intra-day low of 145p seen during Wednesday’s tumultuous session could mark the nadir for RBS.

Shareholders who stumped up £12bn at 200p a share in June will certainly be hoping the MS man is right.

We remain Overweight RBS as we feel the bottom was plumbed at the 16 July intra-day low of 145p, valuing it at 1.5x P/GOP and 0.85x P/TNAV (0.65x post disposals). Concerns on the UK economy, the quality of the US loan book, monoline exposure and general financial systemic issues in the US have driven the share down by 50% since 23 April; and with it now down 77% from the 2007 peak we believe further structured credit write-downs and a 90’s style recession is priced in

Apparently, the fact that RBS is just a large US regional bank with some high street assets in the UK and continental Europe is nothing to worry about either.
US concerns look overdone, with RBS’ quarterly filings showing a superior quality loan book than many peers, no direct exposure to sub prime and monoline marks taken at ~47%.

While UK risk remains, RBS has not grown as quickly into this downturn as in 1987-89 and large parts of its other commercial book are to larger corporates less affected by the credit crunch.

Shares up almost 4.2% at 186.6p during early trade. Only another 14p and they will be back at the rights price.

Related links:
Poor RBS - FT Alphaville
Save Fred Campaign (an occasional and reluctant series) - FT Alphaville
Sir Fred Goodwin 2001-2008 - FT Alphaville

This entry was posted by Neil Hume on Friday, July 18th, 2008 at 9:14 and is filed under Capital markets. Tagged with . You can follow any responses to this entry through the RSS 2.0 feed. Responses are currently closed, but you can trackback from your own site.

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Comments

  1. Jul 18   10:55 Posted by Ex ABN AMRO Banker [report]

    The Real Estate problems are not just confined to the US. RBS is the single largest foreign lender to Macau casinos. That was a ‘good news’ story until a couple of months ago. However, the various gaming stocks are down sharply, China has just made it more difficult for mainlanders to gain visas to Macau. Could be another shoe to drop when half year earnings come out next month

  2. Jul 18   10:46 Posted by Carlomagno [report]

    Agree with G Cox. IMO this is one of the reasons why suggestions that the US housing market, and with it the credit crisis, will hit bottom within less than 18-24 months are delusional. Not to mention the CRE rash and the yet-to-be fully reaslised impact on ABS based on consumer credit (credit cards, auto loans, student loans).

  3. Jul 18   10:45 Posted by herman teppis [report]

    CEO distraction - just ask Jimmy Cayne. Well, when he’s got a minute between bridge tournaments…

  4. Jul 18   10:29 Posted by G Cox [report]

    Prometheus

    CEO Destruction or distraction or both..

    FT, AV etc are not keeping up on the leading edge of the financial crisis and asking the most pertinent question that RBS and other bank share holders and non-holders should know. One needs for example to know exposure of RBS to securitised Alt A assets , but particularly option Arms which never get mentioned on AV unless forced to by events (eg Indymac) and yet are a bigger potential threat than sub-prime. Hopefully non-US banks were not stupid enough to end up holding this stuff via securitisation, but we are not told. For those who don’t know the Option Arm situation ( involving an avalanche of re-sets over the next year), the coming crisis in this area will force issuing banks to take an extra hit on profits (in additions to writedowns) as they booked profit for all the loan expansion created by the voluntary cessation of payments permitted by this type of mortgage .

  5. Jul 18   9:47 Posted by Neil Hume [report]

    Monkey - will look into this and will pass the story on to our Cap Markets people to see what they can come up with

  6. Jul 18   9:41 Posted by Monkey [report]

    Neil - in the bond space Belvedere filed today. They had a covenant breach due to unauthorised equity distribution on a options excise. Only needed 40m to clear but I am hearing that a quoram of 25% bond holders demanded full repayment. Covered by French bankrupcy laws which are a littl complicated but the price fell from 55 to 27 in early trading today. Would be interested if you have any thoughts/sources on this - or is this outside ML coverage? Came as a surprise to me though fortunately I need buy 2 weeks ago when I thought the price was a little depressed!!

  7. Jul 18   9:18 Posted by Prometheus [report]

    .
    The biggest risk of all for RBS is CEO distruction.
    .
    Aka Fred Goodwin.
    .
    All in my humble opinion of course.
    .

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