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LONDON -- There are things to love and loathe about most companies. Today, I'm going to tell you about three things to loathe about taxpayer-owned bank Royal Bank of Scotland (LSE: RBS ) (NYSE: RBS ) .
I'll also be asking whether these negative factors make RBS a poor investment today.
A multitude of sins
Do you look at company results each morning via a regulatory news provider such as FE Investegate? If you own a large portfolio of shares, you probably do. Financial hacks like me certainly do. It's very convenient... mostly.
RBS is one of a few companies that like to make simple things complicated. Its latest annual results were released in eight separate parts -- an improvement on the 13 parts it was producing a couple of years ago, but a pain in the backside all the same.
Global banking giant HSBC Holdings manages to get its results out in a single release. Why can't RBS?
Known knowns, known unknowns
Companies make "provisions" for any liabilities arising from past events for which a reliable estimate can be made. These "known knowns" are recorded on the balance sheet.
Sometimes it's not possible to determine whether any loss to the company is probable or to estimate the amount of any loss. No provision is made for these "known unknowns." In RBS's case, the known unknowns involve legal proceedings, investigations, and regulatory matters, which, if resolved against the company, could produce a big hit to net assets and cash flows.
RBS's litany of known knowns and known unknowns runs to 13 pages under 18 different subheads. If you want to read all the gory details, you'll find them in part three of the results.
Owned by taxpayers to the tune of 82%, RBS is in a position unlike any other company in the FTSE 100. For the time being, the bank remains shackled by the conditions inflicted on it as a result of the government bailout, such as a bar on paying dividends and forced asset disposals.
How, when, and at what cost RBS will return to regular plc status remains to be seen -- just another uncertainty in RBS's veritable catalogue of known unknowns.
A poor investment?
RBS's shares are currently trading at 275 pence, a discount of 38% to net tangible assets. Such a discount can be a "value" indicator for investors. The trouble is that RBS's assets may not be worth as much as their book value -- and probably aren't. Put that together with the pile of potential liabilities, and the discount could easily prove to be a mirage.
If RBS isn't a poor investment, it's certainly a highly risky one. This is not a stock I'd personally be buying for my retirement!
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