RBS to Buy Back $6.4 Billion of Bonds After Shedding Assets

  • Offer includes sterling, euro and dollar-denominated debt
  • Lender's financing needs have fallen due to business cutbacks

Royal Bank of Scotland Plc, Britain’s largest taxpayer-owned lender, offered to buy back as much as $6.4 billion of bonds to reduce funding costs as its shrinks global operations.

The buyback covers debt denominated in sterling, euros and dollars, according to two separate statements on Tuesday. The purchase prices will be set next week and they will “reflect a yield to maturity” to compensate bondholders for cashing out now, the Edinburgh-based lender said.

RBS has less need for financing because Chief Executive Officer Ross McEwan is divesting assets and eliminating thousands of jobs in a bid to end a run of seven straight annual losses. The bank is focusing on buying back notes sold in 2009 to 2011, when borrowing costs were inflated by the fallout from the global financial crisis.

“For banks reducing balance sheets, some debt is redundant,” said Eva Olsson, a credit analyst at Mitsubishi UFJ Financial Group Inc. in New York. “It’s a sign of them retracting.”

RBS is managing the buyback with help from Deutsche Bank AG and UBS Group AG, it said. The offer includes about 1.9 billion pounds ($2.9 billion) of sterling debt, 1.3 billion euros ($1.4 billion) of securities in the single currency and $2.1 billion of greenback notes.

Capital Rules

The notes were issued by RBS’s operating unit, so the buyback may pave the way for a sale of new bonds by the holding company, Olsson said. This would help meet new global capital rules as operating-company debt can’t be counted toward total loss-absorbency requirements, she said.

The reduction in RBS’s balance sheet helped boost the bank’s liquidity coverage ratio to 136 percent at the end of September, according to a company filing. That exceeds an 80 percent requirement under Bank of England rules. The ratio is a measure of high-quality assets.

RBS has “scaled down their balance sheet a lot and are quite cash-rich,” said Suvi Kosonen, a senior credit analyst at ING Bank NV in Amsterdam.

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