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RBS asks Shareholders for £12 billion Investment

RBS asks Shareholders for £12 billion Investment The Royal Bank of Scotland has announced plans to raise £12 billion in capital from investors by the offer of discounted shares.

The offer, known as a rights issue, means that investors are being offered 11 new shares for every 18 existing ones at £2p per share.

This represents a 46.3 per cent discount on the price of the bank’s shares from close of business on the last trading day before the announcement, which was 21 April.

RBS said that the move will help it to strengthen its finances in the wake of the global credit crunch. It also reported extra write-downs worth £5.9 billion before tax, which were related to the credit crunch.


Chairman, Sir Tom McKillop, said: "It was the board's declared intention to rebuild our tier 1 capital to the middle to upper end of our historic range of 7 per cent to 8 per cent over a three-year period, but in light of the current market environment, this level and timing are considered no longer appropriate."

Sir Tom explained that the bank has revised its plans due to the ongoing economic storms blighting the credit market and the deteriorating economic outlook. He said that RBS estimates that the money markets will continue to be troubled for the foreseeable future.


RBS is also considering selling off its insurance wing, along with smaller assets, to boost its core capital by another £4 billion by the end of the year.

The bank’s are believed to have been depleted through to subprime-related losses and 2007’s £57 billion takeover of Dutch group ABN Amro.

RBS chief executive Sir Fred Goodwin came under fire at the bank’s recent AGM in Edinburgh for the rights issue.

However, Bank of England governor Mervyn King has welcomed the move and has even urged other banks to follow suit in order to raise much-needed capital. The easier it is for banks to lend money to each other, the easier it will be for the public to get cheap loans, a second mortgage, or other forms of credit.

Loan News posted on 25 April 2008

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