Goodwin in £10bn fight for survival

Published on Saturday 11 October 2008 18:40

SIR Fred Goodwin, the chief executive of Royal Bank of Scotland, will put his future on the line this week in a bid to rescue the bank from a crisis that has seen £30bn wiped off its value in the past week alone.

RBS is seeking between 10bn and 12bn to shore up its battered balance sheet, according to analysts, and is expected to tap the Government's 25bn fund announced last week.

Goodwin is also expected to turn to existing shareholders in what one source described as a "part-market, part-Government" arrangement to secure the required capital.

With shareholder sentiment against the banks, this could prove tricky, but Goodwin is believed to have won some support for his plan.

Alistair Darling, the Chancellor, last week unveiled a package of measures designed to support the banking sector. Of the 400bn of new money, 25bn was made available to seven banks and one building society in the form of preference shares or permanent interest-bearing shares.

HSBC, Standard Chartered and Santander – which owns Abbey and is acquiring Alliance & Leicester and some of Bradford & Bingley's assets – said they would not issue new equity.

But Barclays, HBOS, Lloyds TSB and RBS as well as Nationwide Building Society are all expected to draw on the Government's funds. It is thought other building societies will ask for support.

RBS is the most exposed, with the lowest capital ratio – or reserves – and therefore the most in need of money. One of the key issues being hammered out this weekend is what mix of preference and ordinary shares it will require.

Preference shares do not count towards its core tier one ratio, the key measure of the bank's capital strength, and RBS already has a high level of these shares.

Therefore it will seek either ordinary shares from the Government or from other shareholders. But the effect of diluting the share base may weigh further on the share price, which closed on Friday at 71.7p, its lowest since May 1993.

RBS is weakened further because its management has been unpopular with the City since the closure of the deal to acquire Dutch bank ABN Amro, now seen to have been expensive. Without the support of the City, Goodwin and his chairman Sir Tom McKillop are facing an uphill battle to hang on to their jobs. There were calls in April for one or both to go after they tapped shareholders for 12bn in the biggest ever rights issue in Britain. Both were the subject of further feverish speculation last week.

RBS is expected to detail its funding request on Tuesday along with Barclays, which will ask the Government for about 5bn. It is thought Barclays attempted to raise funds from overseas sources that supported it last year, but the current malaise afflicting the banking sector is believed to have deterred foreign institutions from throwing more money at UK banks.

HBOS and Lloyds TSB, which are engaged in merger talks, are likely to request 5bn and 4bn respectively towards the end of this month.