Royal Bank of Scotland - Can the Laddie Walk?

The Sunday Times of London has an interesting story this weekend. Evidently Royal Bank of Scotland < RBS > is in  "talks with investors" about an $8 billion  sale of common stock.

But this may not be due to RBS being such a great investment or any other  positive circumstances. It seems that those capital handouts the European Union and British gov gave RBS, when it was insolvent last year, are coming due. If certain money isn't paid back by a certain date, then various subsidiaries and branch  assets will be sold. Evidently, the governments in Europe are "serious" about getting their money back?. Maybe.

And this is not only the case with RBS.  Other large British and Continental European banks, that needed welfare support when they managed to make themselves bankrupt last year, are facing the same dilemma.

It goes without saying, that all the flagrant bank bonus payments with taxpayers money,  hasn't been good for public relations .. Especially when the people getting these outrageous salaries, are many times the screw ups who originally caused the mess. In their time of  need, this is just one more indication of how stupid and arrogant these banks are.

However, there may be more than a passing interest, in whether or not RBS is successful. If it is announced  that genuine < no gov involved >  private funds have bought $8 billion of common stock, then it may be an indication of just how liquid the financial markets have become. And also how speculative. To Guido this would definitely be a triumph of fantasy over reality.

Already this may be indicated by how inflated the whole US bond market has become < see Guido Gossip > . So far, however, the "private investors" seem only interested in picking up the assets that would be for sale. Not in being partners < ie shareholders > with RBS or other banks.

But if no one wants to buy their junk stock, it could finally dawn on the markets, that the whole run up in bank share prices may be due to the banks themselves. If so, it could bring back the old days of October 2008 In other words, everyone may start selling again. Particularly when they may have already made 50% on this fake market run up.

Guido guesses that  much of the money that went into  the stock markets after March 2009 is "hot". Meaning that when the party is "fine' ", no one's going to be around for the nightcap.

Back in 2008, RBS tried to sucker Warren Buffett into saving them. Warren didn't seem to like the smell and later bought General Electric in some kind of "guaranteed deal". In other words for Warren, heads I win, tails they loose. In the next few months, GE dropped more than 50% from the time Warren's deal was announced.

Wilbur Ross did the same thing with Assured Guarantee < AGO >. A private investment deal., not an open stock market  purchase. Again, in the next months, AGO dropped 50%

Both will tell you they made decent profits off this. Stockholders who bought in the open exchange market may still be showing losses. Also, I'm sure Warren and Wilbur would tell you , they never would have done this if they knew how far everything would fall.

If we don't hear anything about RBS in the next few weeks, it will mean they couldn't sell their shares. Significantly , it is interesting that they are "in talks with private investors", rather then openly trying to sell them to existing shareholders < rights offering > or on the open stock exchanges. Is this maybe already an indication of general market sentiment.

Lets see what happens, if they can't make a deal.

Watch then if bank stocks in Europe start going down. Then maybe financial firms in the US. Then maybe the rest of the markets?

It's still exciting times.

"Mr. < J.P.> Morgan buys his partners. I grow my own" - Andrew Carnegie

< As always, this article is for information purposes only. It is not advice or a recommendation >

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