He observes that
Investors have taken the view that virtually all European focused banks, RBS included, have become essentially "uninvestable" and show few signs of changing their minds. Who can blame them? RBS continues to be a massive leveraged play – which in this environment is a complete no no – extreme regulatory and business uncertainty hangs like a pall over the entire sector, the total size of banking exposures remains largely unknown given the increasingly questionable nature of much financial hedging, and as can be seen from the row about Mr Hester's bonus, RBS remains a political football, to be booted around in a way quite unsuited to normal commercial endeavour.
To cap it all, regulators have demanded that European banks raise an additional €150bn in new capital. There's a veritable tsunami of banking capital already slated to hit the market. RBS would be lost in the rush.
The other point worth bearing in mind about RBS is this. The £45bn of capital provided by the taxpayer merely stabilised the position. It didn't pay for the full horror of the legacy losses, which are still coming through. More and more of them keep cropping up all the time, the latest being the likely total writeoff on Greek sovereign debt (so far, RBS has provided for a 50pc haircut).He then asks what to do with RBS.
Regular readers know that my solution for RBS would be to have it become the first large financial firm to provide ultra transparency and discloses on an on-going basis its current asset, liability and off-balance sheet exposure details.
With this type of disclosure, RBS would become investable again as market participants could assess the risk of RBS and would know what they were buying.
RBS is actually the ideal bank to adopt ultra transparency first because the UK government is already its leading shareholder. Market participants know that even if recognition of all the losses hidden on and off the balance sheet causes RBS' book capital to fall below zero, the UK government will not close the bank.
Rather, the UK government will hold onto its shares while RBS rebuilds its book capital through retention of future earnings.