Thursday, November 13, 2008

Royal Bank Of Scotland Postpones Inevitable

UK's Royal Bank of Scotland has been tempest-tossed as one of the non-US banks most exposed to the gyrations in the US mortgage market. So much so that their stock took an absolute drubbing, falling below US$1 at one point.

That is, until the geniuses at RBS undertook a 20:1 reverse-stock split. For readers who don't know, a reverse split reduces the total float of common shares while maintaining the same total market cap, mashing the stock price of 20 shares into the price of one super-share. Thus a 94-cent stock became an $18.85 stock.

There's a specific financial term for this sort of hocus pocus: bullshit. For a start, there's zero value created for existing investors. If you owned 10,000 shares when they were worth a 94-cents each, you promptly own 500 shares worth $18.85. Six of one half a dozen of the other, since the value of your shares are valued at $9425 either way. Hooray.

Of course, if you jumped in after the split and bought 10,000 shares at $18, God help you. Obviously, none of the problems vexing RBS have simply gone away. The market concurs, since RBS has continued to slide downwards since the split, reaching yet another 52-week low of $14.76 today. You don't have to be George Soros to know that pre-split that would have been 73.8-cents a share. Woof.

**The content contained in this blog represents the opinions of Mr. Distad. This commentary may contain forward looking statements and definetely contains sarcasm and rude sentiments. This commentary in no way constitutes a solicitation of business or investment advice. If you're looking for stock picks from me, look somewhere else. Really, what were you thinking? If you came here because you were trolling Google looking for someone to help you get rich in only twenty minutes a month, you need to seriously re-evaluate your worldview. This blog is intended solely for the entertainment of the reader, and the author, and not neccessarily in that order.

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