February 25, 2010 / 11:03 AM / 8 years ago

RBS considering bond buyback, exchange options

LONDON (Reuters) - Royal Bank of Scotland is considering a liability management exercise that could see it buy back or convert part of a 14 billion pound pile of preference shares and innovative securities to boost its core capital.

Analysts have said the move could help part-nationalised RBS take advantage of discounted prices in the secondary market to generate a bumper equity gain and boost its core Tier 1 ratio, a key measure of capital strength.

“Clearly we have a window here to study a liability management exercise and we certainly are considering our alternatives there,” Bruce Van Saun, the bank’s chief financial officer, told analysts.

“It is not an easy equation with all the changing regulation around capital quantity and capital quality.”

He added the bank expected to reach a conclusion by around mid-March.

The bank has a string of options for further so-called “liability management.”

These include buying back securities, exchanging them along similar terms to its deal done last spring, which allowed the bank to book a 4.6 billion pound pre-tax gain, or converting them into contingent capital, following in the footsteps of rival Lloyds.

Reporting by Clara Ferreira-Marques

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