The Royal Bank of Scotland Group plc RBS is set to recognize a loss of £265 million ($400 million) in its fourth-quarter 2015 results relating to its recent tender of certain US dollar, sterling and euro senior debt securities.
The rate of the tender was 56.5% with a total of £2.4 billion tendered. In the statement made on Thursday, the Edinburgh-based banking giant also mentioned that it expects to save around £455 million in interest expense over the life of the related debt securities. Notably, the relevant bonds mature between 2017 and 2028.
RBS had previously 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 company has strengthened 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 not only managed to shrink expensive funding structure to some extent and reduce interest expenses, but got more flexibility in deploying cash in core activities.
RBS currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the foreign bank space include Banco Macro S.A. BMA, National Australia Bank Limited NABZY and Grupo Financiero Galicia S.A. GGAL. All three banks sport a Zacks Rank #1 (Strong Buy).
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