How is this achievable ?

[infundibulum]

ROYAL Bank of Scotland, unveiled a pay package for CEO Stephen Hester worth up to 9.6 million pounds if
shares in RBS average at least 70 pence over 30 days during the last six months of the performance period, which covers three years from the start of 2009.
Stock was trading at 36.14 pence 23/6/2009
If Hester does succeed, the government will be able to sell its 70 percent stake at a profit .

How is this increase in share price achievable ? ---
i.e. expanding RBS , RBS making a huge profit s ,
huge increase in banking customers , huge increase in RBS mortgages , or ???

[dr b]

Yes, RBS would boost its share price by performing better. But, since the bank is extremely highly levered (or geared as you folks say). It would not have to perform all that much better to see the stock go from 36 to 70p.

For example suppose a bank is financed with 99 in debt and 1 in equity, so the firm is worth 100. The debt is due in one year. If in one year the bank is worth 101 (a 1% increase), they can pay off the debt and have 2 left over for the stock. So the stock went from 1 to 2, a 100% return (much like RBS needs to do to pay off the CEO). (But note the risk involved, since if the bank's value fell to 99 the shareholders would lose it all, a -100% return.)

Looking at RBS's 2008 balance sheet they have leverage of 41:1 ($41 in debt for every $1 in equity), so my example is only slightly far-fetched.

[infundibulum]

Thanks , dr b , for your answer .
I have to admit that these things are beyond my understanding .