Bottom Line: Hester is ready to move on from the past
JUST two months into his new job as chief executive of insurer RSA, Stephen Hester is certainly making his presence felt. Alongside a cost cutting programme and planned asset disposals, the former RBS boss yesterday unveiled details of the £773m rights issue that he’s hoping investors will back – at a discount of 40 per cent to Monday’s closing price.
The cash call is a vital step towards propping up the group’s balance sheet, which has been savagely depleted in recent months by accounting problems at its Irish business and storm claims across Europe.
But the truth is that Hester doesn’t need investors’ support – his offer is fully underwritten by Bank of America Merrill Lynch and JP Morgan Cazenove, in return for a 2.5 per cent share of the sums raised. Their money is likely to be safe. At 56p per share, the offer is still well below the lowest price that RSA shares have hit in the past year (78.2p). Investors will pile in, even though there’s a lot here to dislike. They’ll be smarting at the significant dilution that 1.3m more shares flooding the market will cause, with analysts predicting earnings per share could be half their previous forecasts for this year and next. And that’s before they consider the impact on the dividend, which, if it happens, will also take a big hit.
But mostly, they’ll be relieved. RSA’s new broom has wasted no time in laying out exactly how he plans to return the firm to profitability – albeit as a smaller entity – and there’s no reason to doubt he’ll do it.
Last year was horrible, but those who have stuck around for 2014 will be glad they did.