RBS and Lloyds: the reaction

The banking sector break-up has sent shock waves reverberating round the stock market. Although many of the details were known beforehand, the confirmation of plans for Royal Bank of Scotland (RBS) to enter the government's asset protection scheme - taking the taxpayers' stake to 84% - has sent its shares spiralling to double digit losses.
 
Lloyds (LLOY) in contrast has fared significantly better with its shares rising more than 1% as investors see a light at the end of the tunnel.
 
Here's what the professionals and the private investors make of the news.

RBS

Paul Mumford, senior fund manager at Cavendish Asset Management: "RBS is the epitome of making the best of a bad situation. However much today's news was expected, the prospect of hefty divestments and 84% taxpayer ownership is a bleak one, particularly when there is limited potential upside for shareholders in the future".
 
Chris Alexander of Fortis Private Banking: "We find it virtually impossible to place a confident value on the shares which remain higher risk and not for the faint hearted investor."
 
Richard Buxton, head of UK equities at Schroders: "Most importantly, perhaps, in the RBS statement is confirmation of the trends seen by Lloyds for a stabilisation in credit impairments and the risk of a further significant deterioration receding.

"Inevitably, given the scale of Royal Bank's difficulties its path to recovery is harder and higher risk than Lloyds, but it is clear from both announcements that the healing process is underway, which underpins our longer-term confidence in the banks."
 
Jonathan Jackson, head of equities at Killik & Co: "Overall, given the complexity of the scheme and the continued uncertainty hanging over the company, we find it difficult to recommend holding RBS."

David Buik of BGC Partners: "The outlook for RBS is, to say the least, cloudy. There seems little chance of the tax payer being repaid for services rendered for at least three years and probably five." 
 
Investors writing on Interactive Investor's Royal Bank of Scotland discussion board
 
Nest-egg says: "All the APS does is effectively hands another 14% of RBS ownership to the government and pays for the right to do so. It's ludicrous, that is why Barclays said no thank you and that is why Lloyds said no thank you.
 
themanxman says: "I've a feeling this will head much lower and eventually it would not surprise me to see the government owning the lot. There is very little left for shareholders and this is no longer even a decent long term bet.
 
Taffychaff writes: "This deal draws a line in the sand over any toxic assets. RBS is actually quite profitable. Any sales could be used to reduce government stake. The government cannot nationalise as [the] RBS balance sheet would destroy their credit rating."
 
Bat Farrel says: "The share price means diddly squat if the government is willing to keep giving the bank life support. HMG has an unbelievably huge amount to lose in this too. I'm quite sure talk of full nationalisation will rear its ugly head again. But until it happens the share can hit a 1p and it does not matter."
 
Have your say on the discussion boards

Lloyds

David Buik of BGC Partners: "Top marks to Sir Win Bischoff and Eric Daniels for having the foresight to pre-empt what has transpired. Whether this is made into another retail bank before being sold remains to be seen."
 
Vince Cable, Liberal Democrat Shadow Chancellor: "Lloyds were happy to join the Asset Protection Scheme (APS) when they needed the taxpayer to see them through the financial storm. But now the worst is over, we are being forced to bail it out again to the tune of £6bn so it can wriggle out of its previous commitments to us.
 
Richard Buxton, head of UK equities at Schroders: "Against our current reasonably cautious outlook, we do believe this is a positive move by Lloyds and represents an attractive opportunity to increase exposure to the shares."
 
Paul Mumford, senior fund manager at Cavendish Asset Management: "The bank has emerged relatively unscathed in terms of forced divestments, while the involvement of Neelie Kroes in negotiations suggests that a line is finally being drawn under competition concerns.

"In particular, news that the issue will be fully underwritten has offered reassurance that the needed finance will be forthcoming and reflects wider confidence in the recovery case for Lloyds."
 
Nic Clarke, banking analyst at Charles Stanley: "We are concerned that the "ultimate decision" regarding the terms of the final restructuring plans have not been taken by the EC and that although the Board of LBG believe that this will occur before the end of 2009 and be largely as outlined, there is a risk that the goal posts could move if there are complaints that LBG has been treated too leniently.
 
"We are also concerned that by not participating in APS, LBG will not have any downside protection if the UK economy deteriorates sharply again.
 
Investors writing on Interactive Investors' Lloyds Banking Group discussion board
 
Bowman: "The two year ban on dividends is very unpleasant, but LBG has now ceased completely to be an income stock - it is now not even a potential dividend payer- and can at best be considered a pure growth/recovery stock."

Beau Gurmee: "No dividends until after January 2012!! Brilliant. Apart from the Capital Loss that means a serious continuation of lost income for as far ahead as I can see!!"

Spain Fund: "I feel sorry for the loyal employees in Lloyds TSB Scotland and its Cheltenham & Gloucester mortgage business branches, as well as its Intelligent Finance and the TSB brand. A couple of years ago they were going steadily about their jobs in a steady safe bank now they are being thrown to the lions. I feel sorry for myself to as a shareholder for many years too!"

Watchdoggy: "As an incentive, and to give additional stability to the stock, it would make sense if they introduced an extraordinary dividend for those holding the share for the next two years...mind you the thought of any dividend payment at the moment would be quite extraordinary."

Daringdave: "I think this share will retrace to 40p and then the inevitable nationalisation will  take place."

Have your say on the discussion boards