RBS nationalisation could wipe out debt holdings: Omam
Corporate bond manager sells down bank holdings and warns of subordinated debt destruction if RBS is taken over by government.
Investors holding higher risk debt issued by the Royal Bank of Scotland (RBS) could see the value of their holdings wiped out if the bank is fully nationalised, Old Mutual Asset Managers’ Christine Johnson has warned.
It emerged yesterday (August 2) that the government was considering taking on the 18 per cent of RBS which it does not already own, although chancellor George Osborne opposes the idea.
Ministers are concerned about the bank’s continued reluctance to lend to small businesses, in spite of several measures brought in by the government to encourage more finance to be made available to this area of the market.
The government has owned 82 per cent of RBS since late 2008 when it stepped in to stop the bank going bust. The Financial Times reports this morning that previous chancellor Alistair Darling considered a full nationalisation at the time of the government’s cash injection.
Ms Johnson, manager of the £462m Old Mutual Corporate Bond fund, said a full nationalisation of the bank was unlikely as there was “zero appetite” for taxpayers to take on more of a stake in the bank.
She said RBS’s lower tier two debt, which is the least senior form of bond a bank can issue, could be completely wiped out if full nationalisation did happen.
“There have been numerous warnings in recent months about these bonds - yields are telling you that you are buying distressed debt,” Ms Johnson added.
The manager still has a small holding in lower risk RBS debt, and has also sold much of her holdings in Lloyds Banking Group and Barclays following the latter bank’s fines relating to attempted fixing of Libor.
Ms Johnson said: “For us, the banking sector is so politically charged. It’s not a strong industry - it’s been subject to multiple downgrades and some of the regulatory fines could be substantial.”
The Old Mutual Corporate Bond fund has posted a 10.8 per cent gain since Ms Johnson took over running the fund in April 2011, following the departure of Stephen Snowden, compared with an IMA Sterling Corporate Bond sector average of 11.2 per cent.