Not in a credit crisis sense – just the numbers.
Willem Buiter is pretty well gob-smacked, since the plan is even more disadvantageous to the tax-payer than even the Maverecon blogger had feared:
The government should stop playing ostrich, extract its head from the sand, observe that RBS is no longer viable and either nationalise it or make it the first bank to enjoy the rigours of the Special Resolution Regime for banks created earlier this month in the new Banking Act. Through the SRR it could even implement the ‘good bank’ solution for RBS.
The penny hasn’t dropped yet for Lloyds, but that cannot be long in coming. The government should act courageously and decisively and put the non-viable banks out of their misery, in the process saving the tax payer some misery.
But it is the receding threat of nationalisation – together with the lower-than-expected headline fee associated with the asset insurance scheme – that encouraged a 6p pop in the RBS share price on Thursday to 28.5p.
That said, Jonathan Pierce at Credit Suisse has found reason to increase the size of the effective fee from 2 per cent to 5 per cent. As he told CS clients:
We continue to believe that the combination of the APS and B shares are helpful to RBS. However, the Treasury and RBS presentations highlighted that the terms weren’t quite as generous as they first appeared. In particular, the loss of £4.6bn of UK deferred tax asset and the prospect of handing over future UK tax credits significantly increases the effective fee from the 2% headline number we saw first thing. To put this in context, the £4.6bn loss added to our estimate of a deferred tax credit of up to £6bn over the next two years, in the event of a severe downturn, increases the effective fee by about 3% to 5%. It also reduces our stressed tangible NAV estimate by up to 10p.
When the share price is sub-30p, 10 pence here or there on the NAV is rather significant. Pierce offers two scenarios:
Base case
Tangible NAV at end 2008 pro-forma = 52p (we are not front-loading the fee – perhaps too kind on the bank – or the first loss piece – although we are completely comfortable with this)
Tangible NAV falls to 45p at the end of 2010E
Equity tier 1 at end 2008 moves to 11.1%
Equity tier 1 at end 2010E moves to 10.2%
Stress test
Tangible NAV again starts at 52p, but falls to 32p at the end of 2010E
Equity tier 1 again starts at 11.1% but falls to 8.1% at the end of 2010E
Related link:
Relevant spreadsheet – in the Long Room