INVESTORS in Royal Bank of Scotland are expected to wait until close to Friday's deadline before deciding whether to take up their allocation of shares in the record-breaking £12bn rights issue.
The markets expect further volatility in the price this week amid high trading volumes, forcing many shareholders to hold off in case the price plummets below the 200p pricing of the new shares.
The shares have fallen sharply since the rights i
ssue was announced on April 22 and set a new 52-week low during Thursday's trading session when they fell to 223.5p. They closed on Friday at 228.5p, down 7.4% over the week and 57.6% over the year.
Although the issue is fully underwritten by UBS, Goldman Sachs and Merrill Lynch, which guarantees RBS will get its money, there is some anxiety that the issue will be a flop.
Traders say underwriters would dump any stock forced on them and this would depress the price further. However, none of the big institutional shareholders has indicated that they would avoid it. They voted to approve the issue, and for any to pull out now would be a surprise. Private shareholders represent 7% of the total.
Sources close to the bank remain confident that removing non-eligible shareholders, including holders of American Depositary Receipts and those who will sell their rights, the issue should achieve a decent take-up rate of close to 90%.
In a newly published circular, Jonathan Pierce at Credit Suisse has upgraded the shares to neutral, arguing that they have under-performed the European banks by 15% and can benefit from prospects at RBS.
However, another analyst believes the shares will fall below the rights price and said he would not be surprised if the rights issue fell short of an 80% take-up. But RBS may see some first-mover advantage in declaring its cash call early.
"There is concern about where their growth is going to come from and what return you are going to get from the new shares," said one analyst.
Separately, a HBOS spokesman said on Friday that he had "no knowledge" of any forthcoming redundancies at the company despite rumours circulating in the banking industry that substantial cuts were on the way and that the corporate banking division was feeling the effects of a series of investments in the troubled housebuilding sector.
The full article contains 406 words and appears in Scotland On Sunday newspaper.
