The Royal Bank of Scotland Group plc RBS has inked a deal to ramp up its lending activities in Europe. The state-owned bank will partner with Hermes Investment Management, M&G Investments and AIG Asset Management to provide loans to mid-sized companies that are backed by private equity investments.
Per the agreement, Royal Bank of Scotland will co-fund loans valued up to £100 million; with its personal contribution anticipated in the range of £15−£30 million per individual transaction. Notably, the bank has already funded 3 loans worth £250 million, across IT software services, restaurants and laundry sectors in the U.K., under this scheme.
Further, while Royal Bank of Scotland will be responsible for loan origination and co-ordination among the involved parties, each asset manager will carry out its own credit analysis. According to sources, the bank will likely source the required financing from pension funds and other long-term savings.
More importantly, such collaboration is expected to serve as a one-point source of financing for mid-sized businesses, who otherwise face high borrowing costs for having to raise small amounts from multiple borrowing sources. This, we believe, will help boost business growth in Europe.
Moreover, increased lending activity is expected to drive higher revenues for Royal Bank of Scotland. Also, financing companies which are backed by private equity companies is considered safe, since such companies will, more likely than not, have favorable prospects. According to sources, the group will target companies with annual revenues of at least £10 million.
Richard Roach, head of financial sponsors at RBS, said, ““Doing more deals is the key issue here. We have a fair share of transactions in this market, but like any business we would like to do more.”
Further, he expects to fund close to 80 deals in 2016, up from an estimate of 65 deals in 2015. Moreover, the bank aims to make loans worth £600−£700 million in 2016.
Royal Bank of Scotland currently carries a Zacks Rank #3 (Hold). Better-ranked foreign bank stocks include BBVA Banco Francés S.A. BFR, with a Zacks Rank #1 (Strong Buy); and Banco Macro S.A. BMA and Grupo Financiero Galicia S.A. GGAL, both carrying a Zacks Rank #2 (Buy).
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