Derek Pain: Small shareholders will be the losers in RBS consolidation
No Pain, No Gain
Saturday 12 May 2012
Share consolidations have much to commend them – but sometimes they can be disastrous for small shareholders. The Royal Bank of Scotland (RBS) is the latest to indulge in a revamp that will transform its low-price shares – more or less in the penny-dreadful category – to rather more heavyweight components of the stock market.
This month, shareholders will be able to vote on the consolidation which will switch every 10 shares into just one. What amounts to a cosmetic exercise will almost certainly be approved. As a result, investors should have a share worth, say 240p, instead of 10, each changing hands at around 24p. Their percentage interest, including the Government's 82 per cent, will be unchanged. The switch may even provoke a modest price uplift.
But there will be losers. Those with 10 or less shares will be wiped out. They, and investors who have shares outside the range of 10, can reclaim their cash entitlements, which will not be much above 200p. If they don't, the money goes to charity. Their consolation, besides any capital gains tax consideration, is that it would not be cost effective to sell through the stock market. Before calamity overwhelmed RBS, the shares were much higher than the present, depressed level. Consequently, other investors who ploughed modest amounts into the stock will still be holding so few shares that it will be unrewarding to sell.
RBS makes the usual noises about the motives for consolidation. The shares will be given a value "more appropriate" to a group its size (capitalisation is £14.6bn) and will provide a more consistent valuation and reduce volatility. It will, I imagine, also cut the cost of maintaining the share register as some 60 billion shares will slip to around six billion.
I would not be surprised to see Lloyds Banking Group, the nation's other bank with a Government involvement, adopting the same capital route. Both banks were laid low by the financial crisis and their recovery is slow and painful. RBS suffered from ill-judged expansion and investments, whereas most of Lloyds difficulties stem from the Government-inspired rescue of HBOS, a former mutual taking in the Halifax building society.
Because of Halifax, which offered shares based on the value of saving accounts, Lloyds, which only five years go enjoyed a share price of more than 500p compared with around 33p these days, probably has a far longer list than RBS of really tiny shareholders.
I would not buy either share. Any long-termer who is already lumbered should hold on and hope for the best.
Consolidations from a company's viewpoint have much to commend them.
Besides the perceived cosmetic implications, a low price share has disadvantages, including presenting cash-raising difficulties if it sinks below par. The nominal value of RBS shares is 25p, although after the upgrading it will be 100p.
But in some cases such manoeuvres can be upsetting for shareholders. It is not at all unknown for a company over the years to indulge in a number of consolidations, resulting in the total wipe-out of shareholdings.
I am not, of course, suggesting RBS will go along such a path, but it has happened among the small cap fraternity.
I have recorded how consolidations as well as a sinking share price helped to reduce a no pain, no gain portfolio investment of £5,000 to a mere £200. I can think of a number of examples where once high-flying shares have slumped due to poor management, changed circumstances and the inevitable consolidations.
The danger is that share revamps can become an addictive habit. And it only takes a few before small shareholders, who may have invested a couple of thousand pounds some years earlier, are, in effect, eliminated or left with a few near worthless shares.
Sometimes, as with RBS, charity is the beneficiary, on other occasions it is the company which scores as the tiny stakes are lumped together and, to add insult to injury, sold in the stock market to enhance the coffers of the malfunctioning business.
So a company may, for a variety of reasons, advocate the merits of share revamps, although small shareholders may believe that they represent at best a mixed blessing.
Q&A: What’s the best way to invest for our baby?
Crowd-to-let: How crowdfunding sites can give investors a slice of the property market for £500
Simon Read: 'Seven Families campaign offers an escape from financial and emotional distress'
After the election: What will Britain's financial future look like on 8 May?
General Election 2015: How you vote next week could affect your finances
- 2 The man who filmed the Freddie Gray video has been arrested at gunpoint
- 3 How the language you speak changes your view of the world
Over 50,000 families shipped out of London boroughs in the past three years due to welfare cuts and soaring rents
EU asylum policy is 'a direct threat to our civilisation', says Nigel Farage
The Rothschild Libel: Why has it taken 200 years for an anti-Semitic slur that emerged from the Battle of Waterloo to be dismissed?
General Election 2015: SNP and its activists 'openly racist' towards the English, Farage says
General Election 2015: UK will be 'run for the wealthy and powerful' if Tories retain power, Labour warns
Schools forced to act as 'miniature welfare states' with teachers buying underwear and even haircuts for poor pupils
iJobs Money & Business
£16000 - £18500 per annum: Recruitment Genius: This is an excellent opportunit...
£24000 - £28000 per annum: Recruitment Genius: A Senior SEO Executive is requi...
£16000 - £18000 per annum: Recruitment Genius: An Online customer Service Admi...
£18000 - £22000 per annum: Recruitment Genius: This global, industry leading, ...
Day In a Page
This detached four-bedroom home in Middleyard is arranged over two floors, with features that include a wood-burning stove and bespoke oak staircase.
In a row of eight detached Georgian residences, this five-bedroom home offers views of The Sound, Mount Edgcumbe and Cornwall from its impressive veranda and full-length balcony.
If you love cooking for friends this two-bedroom flat - complete with views of the iconic Battersea Power Station and an open-plan kitchen/dining area - will go down a treat.
Located above Grasmere village, this five-bedroom home is arranged over three floors and offers countryside views across Grasmere Lake towards Silver Howe.
Surrounded by the Western fells, this five-bedroom Georgian home retains many original features including panel-plastered ceilings, sash windows and fireplaces.
This six-bedroom home is set amongst three acres of grounds. Currently a large family home, Clift Hill has potential to make a B&B, subject to change of use permissions.
A former period coach house, Glebe Farm Stable is now a three-bedroom cottage with a double car barn, office, kennels and an outbuilding that's currently used as a gym.
Set sail for this four-bedroom farmhouse in Cowes. With five acres of land and an indoor pool, this home oozes character. There is even potential to let a one-bedroom annexe.
Surrounded by woodland, this five-bedroom manor house has plenty of outdoor storage space in the form of three converted loose boxes, two smaller outhouses and a woodstore.
This four-bedroom detached home comes with a double carport, useful workshop, garden and two walkways that offer views of the adjacent countryside.
With space for an equestrian business, a greenhouse for growing your own veg, a wine store and a gym; this five-bedroom home has all the ingredients for a country retreat.
This four-bedroom home has exposed brick chimneys and a vaulted ceiling in a breakfast room that's ideal for summer entertaining - the doors open to the patio and garden.
The decked roof terrace of this two-bedroom flat is perfect for summer drinks while large windows and ample storage space make for a light and spacious interior.
Surrounded by approximately 15 acres of grounds, this six-bedroom grade II-listed home has been extensively refurbished yet retains many period features.
This four-bedroom home comes with a two-bedroom cottage and commercial office, with planning to extend, in a stunning courtyard setting.
In a pretty Norfolk village, this four-bedroom family home is surrounded by landscaped gardens, with even a self-contained annex for guests.
A few miles from the seaside at Perranporth, this four-bedroom farmhouse sits amongst nine acres of idyllic grounds - including a lake and two barns used as holiday lets.
This five-bedroom home is arranged over three floors of a converted Victorian hospital, offering spectacular views of the Pentland Hills - only three miles from the city centre.
This four-bedroom detached home comes with grounds that span to approximately 2.5 acres, as well as two large patio areas and a double garage.
This four-bedroom cottage is a Grade II-listed town house, well-located for the thriving market town of Nailsworth.
A four-bedroom apartment on the ground floor of a stunning period property in North Yorkshire, with two kitchens and a large south-west facing garden.
This high-spec two-bedroom home is part of a smart collection of new flats at Beaufort Park and has a large decked balcony that's perfect for summer drinks.
Capitalise on the fabulous views of Trevone Bay by taking two homes and creating one spacious boutique B&B. Just a cliff-top walk from Padstow.
Overlooking a golf course, this six-bedroom Edwardian detached home spans four storeys and retains many period features including the original, operational servants' bells...
On the edge of the city, this six-bedroom home comes with an outdoor swimming pool and a large garage block that has annexe potential.
In a Grade II-listed manor just outside of Bath, this three-bedroom home is arranged on two floors with a skylight in a vaulted roof line.
Open the living room's bi-fold wooden doors to reveal a retro-style kitchen, and a conservatory leading to a paved garden at this three-bedroom home.
A Grade II-listed, four-bedroom home, in a charming Somerset village, with a two-storey studio that could be converted into a holiday cottage
A modern four-bedroom Victorian home, within walking distance to the high street
A luxury apartment in the Gothic mansion of Wyfold Court in Kingwood, offers six bedrooms spread over three floors and a turret
This school conversion, near Stockwell Tube, oozes New York loft style. The one-bedroom flat features double height ceilings and exposed brick work
This six-bedroom Georgian home is on three floors with open fireplaces, a two-oven Aga, an annexe, and cottage gardens with outbuildings and a car barn
High Crest House covers an impressive 9384sq ft, with almost three acres of grounds including a tennis court and summer house enclosed by electric gates
A six-bedroom farmhouse with separate accommodation in converted stables. Situated in the village of Church Aston, within walking distance to the market town
A two-bedroom flat with under-heated walnut floors and bespoke built-in storage. The Tube and Clapham Common are a short stroll away
A refurbished seven-bedroom townhouse with staff quarters, cinema room, superb gym, steam room and plunge pool
A minimnalist four-bedroom home designed to the highest spec, featuring glass walls and a kitchen space lit by a glass roof
Hibernate during winter and make your living during the summer at this busy guesthouse with panoramic sea views, in the village of Lynton
A four-bedroom penthouse next to the Tate with direct views of St Paul's from two floors of luxurious living space
A four-bedroom detached home surrounded by spacious gardens and woodland, close to New Pudsey
An 18th-century, three-bedroom home near Langstone Harbour built from ships beams with vaulted ceilings and wood burning stoves
A five-bedroom semi-detached home with a mix of period and modern features in a popular and convenient location
This five-bedroom red-brick beauty overlooks the village green and sits in just under two acres of land
A three-bedroom villa with self-contained flat, minutes from Lake Windermere
A five-bedroom Victorian home with four receptions, superb gardens and paddock in Pembury
An eight-bedroom house on the south side of the The Green with cinema, wine cellars and summer house
This 17th century beauty is full of rustic cosiness, while the detached home office means you can also run a business
Four exclusive apartments in a Grade II-listed former medical school with 2,275 sq ft of living space and 18ft ceilings
A five-bedroom terraced house on the popular Peterborough Estate, ideally located for both Eel Brook Common and South Park