No need to panic as RBS prepares for a tidy-up rather than a fire sale

THERE are few signs of frayed nerves at Royal Bank of Scotland HQ ahead of the full year results later this month when the markets await news on a growing list of questions about the state of its balance sheet.

Banking sources say that it is "business as usual" at Gogarburn and that nothing much has changed since the last update before Christmas. It expects to make £10bn profit, though there will be another writedown due to its exposure to the credit markets.

But in spite of assurances from some of those close to the bank, the rumours just won't go away. Sir Tom McKillop, the chairman, is said to have told investors there will be no cut in the dividend or a cash call via a rights issue, yet there is still a view that the bank needs to raise money, possibly through asset sales, in order to bolster its key capital ratios. A couple of banking sources have gone so far as to say that if there was a dividend cut it would be a resigning issue for chief executive Sir Fred Goodwin.

The list of businesses that could be sold is as long as the bank's own inventory, including its stake in Bank of China, though that would contradict the logic in its ABN Amro deal; its operations in America, surely unthinkable, despite the economic downturn; and its portfolio of insurance businesses.

This latter group, which includes Direct Line and Churchill, could offer some scope for raising funds in a sector with some room for rationalisation. One analyst puts the value of this division at about £7bn. Because RBS has a policy of retaining individual brands, it is also easier for them to be offloaded separately, even though they may share a common platform.

But the latest word is that the review will be limited to "tidying up" the newly acquired businesses in Dutch bank ABN Amro. Sources in the sector were telling me last week that there will be no fire sale, and probably no major asset sales at all beyond Angel Trains, the rolling stock leading company which must raise at least £3bn, and possibly £4bn, before RBS will sell it.

One note released at the end of the week from Standard & Poor's suggested the company is in reasonable shape and that the shares are oversold. Despite the worrying outlook on the economy and the likelihood of no rise in the dividend, it may be time for investors to take another look. The shares closed on Friday at 366.5p which equates to a massive 8.85% dividend yield. With Standard & Poor's pencilling in a target of 550p, they look tempting.

IDMoS case reveals industry's fragility

THE profits warning issued by Dundee dental technology company IDMoS on Friday could hardly have come at a worse time. As one of Scotland's life sciences hopefuls, its troubles emerged less than 24 hours after the sector's leading players held their annual bash at the Edinburgh International Conference Centre and heard John Swinney, the finance minister, announce somewhat ambitious plans for Scotland to become a world leader in the industry.

IDMoS is now seeking a buyer after cancelling a cash-raising exercise and seeing its shares collapse 73%, which leaves it worth a measly £2m.

Of course, one company's problems don't damn an entire sector, but in this case they do highlight the fragility of an industry that will always have its casualties.

As our feature on page 5 illustrates, life sciences is a modern, high-value industry that needs to be cultivated, but it is also one fraught with difficulties.

While the government has to support it, there has to be a realisation that it will never transform the Scottish economy in the way that some would have us believe.

Phoney battles of little substance

SO LITTLE room for raising finance, yet so much deal talk, and the proposed tie-ups just get bigger, as if the credit crisis and the downturn isn't happening.

Currently on the table is a £75bn offer from mining giant BHP Billiton for Rio Tinto and Microsoft's £22bn billion swoop on Yahoo. Last week saw pub company Punch Taverns propose an all-share takeover of Mitchells and Butler.

Contrary to expectations of a slowdown in mergers and acquisition activity, we have seen the return of the company raider who has stepped in to replace the private equity boys who are now finding it harder to raise money for the big ticket deals.

But there is a question over how many of these deals will actually happen. With the markets so volatile, it is becoming harder to price risk and some are likely to wait until things settle down. There could be a few phoney battles in the weeks ahead as companies size each other up before throwing any punches in anger.