Royal Bank of Scotland in £15.8 billion debt exchange
In a complicated financial transaction, Royal Bank of Scotland has unveiled plans to buy back £15.8 billion of debt at a discount to its face value which will actually generate a £1.25 billion paper profit for the bank. The debt buyback is expected to increase the company's core tier 1 capital ratio by around 30 basis points which will improve the company's financial standing and create a firm base for the future.
This is not the first time the Royal Bank of Scotland has offered to exchange debt and restructured the company's balance sheet although in reality this is one of the more prominent moves as we now move towards a full-blown economic recovery in the UK. The bank is currently 84% owned by UK taxpayers and despite plans by the government to sell on the shares at a profit as soon as possible, this would appear to be some way off with the bank still struggling.
However, it is encouraging to see the likes of Lloyds bank and Royal Bank of Scotland looking to the future and reorganising their balance sheets, even if in the short term there may appear to be very little benefit. It is vital that the battered balance sheets of Royal Bank of Scotland and Lloyds bank are revitalised in the short to medium term so that the companies appear more attractive when the government eventually decides to sell shares held on behalf of taxpayers.
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