And the taxpayers' bank is reportedly giving some key staff 100% pay rises.
After recently announcing a £3.6bn loss for 2009 (which was actually a good bit better than the industry had been expecting), Royal Bank of Scotland (LSE: RBS) is back in the news this week with stories of a plan to buy back a large chunk of its total debt mountain of £28bn.
Chipping Away At The Mountain
According to a Financial Times report, RBS is planning a similar debt restructuring to that undertaken by Lloyds TSB (LSE: LLOY) in December, which would see it buying back at least £10bn of its outstanding debt of £28bn. Some of the debt will reportedly be paid off from cash, with some being exchanged for other instruments, like long-term bonds.
This also follows in the footsteps of the Dutch Rabobank, which issued 10-year bonds to the tune of £1.1bn last week, with RBS possibly eyeing something similar. The FT reports that the bosses of RBS are finalising the details, and that we should see an announcement in the next couple of weeks. No confirmation or denial of the report has so far been issued by RBS, which is currently 84% owned by UK taxpayers.
Big Pay Rises
Those same taxpayers might also be surprised by Wednesday's report in The Scotsman that RBS has doubled the salaries of some of its key investment division employees. As we saw last month, RBS is trapped between conflicting requirements -- pressure from government and taxpayers to limit staff remuneration while the bank is loss-making, and the need to prevent a brain drain to other, profitable and higher-paying, banks.
Big pay rises for its highest-flyers could be one way round the current public antipathy towards bonuses, stemming from the excesses of recent years.
So what about RBS as an investment now? Back in January, fellow Fool writer David Holding opined that RBS shares were a contrarian buy. From 35p at the time, the shares have already gained over 20%, to stand at around 43p today. So at the very least David managed an impressive bit of short-term timing.
A contrarian buy?
Looking at the longer-term picture, while current measures aren't very useful, analysts are predicting earnings per share of around 2.2p in 2011 (from a pre-tax profit of about £4bn). That would put the shares on a potential P/E of just under 20, which is pretty stellar for a bank. But if RBS management can turn things around quicker than expected and return to profit this year (consensus forecasts are for a £1.7bn pre-tax loss), we could well see a nice share price boost.
The so-called experts badly over-estimated last year's loss, and there is huge variation in current individual guesses, so the current consensus is probably worthless. RBS could be a nice earner for those who like the occasional high-risk punt.
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