"Any wisdom from @madamswer would be enormously appreciated"@Jausty1919,
Apologies for responding only now, but I have been away from my computer for a while.
I'm not sure I can add much to the considerable discussion that has taken place on this issue, save to say that while I don't believe a capital raising is necessary nor on the cards, I think that a dividend - instead of being declared with the upcoming result - will now be at least 12 months, and probably 18 months, away as the preferred means to repair the balance sheet and re-build capital adequacy buffers to their levels before this increased provision.
In my view the company has gone from being very comfortably capitalised (over-capitalised, some might say) to a touch lightly capitalised today. But in 12 months' time, the organic capital generation,
sans any returns to shareholders, will see it once again being more than adequately capitalised [*], both in they eyes of the banking regulators, as well as in terms of the target capital levels of the company's management.
[*] Especially if not all of the increased provisions are utilised.
But in all these situations, the stock needs to be re-assessed as a fresh investment decision in the context of the new information, that being: the increased provisioning requirement in conjunction with the lower market value of the company.
To that end, the new information for me is that I will forego dividends of, maybe, 20p (equivalent to some 300m pounds) over the next 18 months. By contrast, the market value of the company - as it is being offered to me today - is some 430m pounds lower.
Accordingly, all other things being held equal, the stock is to me a better investment today than it was before this PPI torpedo struck.
Of course, not all things are equal; the most striking difference is that the company's capital adequacy ratios are now no longer as conservatively struck as they were previously. In effect the company has gone from returning capital to shareholders (possibly including via a buyback which would have been very value accretive at the current share price levels) to now having to conserve capital.
But the thing that is important to me, namely, the underlying valuation appeal, has not changed (in some ways, it has actually improved).
But what has changed is that the catalyst for the crystallisation of the undervaluation has been deferred, by at least 12 months, I reckon.
I am a patient investor and 12 months is not a long time for me, but I can understand that many other investors, impatient for investment performance, will not be happy to wait that long.
So I will not be surprised to see the share price remain at the current depressed levels for some time to come. Possibly even for as long as the next 12 months (with the added caveat that I am rubbish at forecasting share price movements).
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(20min delay)