RBS firms up plan for a £12bn rights issue

Published on Monday 21 April 2008 10:48

ROYAL Bank of Scotland has confirmed for the first time that it is considering plans to ask shareholders for billions of pounds of extra funding.

The Edinburgh-based banking giant said today that it is "considering a rights issue" and will make a further announcement "in due course".

The bank is expected to ask for around 12 billion to strengthen its balance sheet, which has been weakened by credit crunch writedowns and its part in the acquisition of Dutch lender ABN Amro last year.

More detail is expected on the rights issue ahead of the bank's annual general meeting of shareholders on Wednesday. Chief executive Sir Fred Goodwin and chairman Tom McKillop are expected to avoid calls to resign over the turnaround in the bank's fortunes after shareholders were today reported to have "reluctantly agreed" to them keeping their jobs.

But there is expected to be fresh calls for a financial heavyweight to take on a position as non-executive director to counter-balance Sir Fred's power on the board.

And RBS is also expected to announce the sale of its insurance division, including Direct Line and Churchill, as well as its Angel Trains arm, to raise up to 8.5bn.

In its brief statement to investors this morning, RBS said: "Following its statement on Friday April 18, 2008 and recent speculation The Royal Bank of Scotland Group confirms that it is considering a rights issue.

"A further announcement will be made in due course."

The announcement prompted another drop in RBS' share price. It dipped 6p to 378p in early morning trading today.

The decision to move for a rights issue is seen by some shareholders as proof that the firm gambled too much on the 57bn break-up of ABN Amro, which happened in the early stages of the credit crunch taking grip.

It was widely expected that a number of influential shareholders would call for Sir Fred and Mr McKillop to leave as a result.

Although sources close to the bank admit that investors are furious, it is understood that they have now "reluctantly agreed" to the pair keeping their jobs.

It is thought that the bank could also unveil around 5bn of write-downs on mortgage-backed investments hit by the credit crunch – in addition to the 2.5bn write-downs already revealed in the annual results.

But the sale of its insurance division and Angel Trains could go a long way towards recouping the losses.

Churchill was bought from Credit Suisse in 2003 for 1.1 billion, while Direct Line could be worth around 4 billion.

The share issue by RBS, which could be announced tomorrow, is expected to be followed by similar moves from the UK's biggest banks, including HBoS and Barclays.