THE Royal Bank of Scotland, the only Scottish banking giant still standing, plunged in value yesterday after one of its partners in the controversial ABN Amro deal collapsed.
The future of Sir Fred Goodwin, the chief executive of RBS, was called into question after Fortis, the bank that he led into the 50 billion ABN takeover, was nationalised.
Analysts warned that, although the Scottish bank's finances appeared secure, the loss of shareholder confidence could propel it into a precarious position.
A fifth of the value of RBS was wiped out at one stage – it would have been its biggest daily fall in 20 years.
When the FTSE closed, RBS was down 12.98 per cent, while HBOS fell 18 per cent, Lloyds 13.8 per cent, Barclays 8.8 per cent and HSBC 1.59 per cent.
Following last night's turmoil on Wall Street, with the Dow plunging almost 780 points after US politicians rejected a 700 billion bail-out plan for the US economy, attention will focus on RBS.
The bank's woes followed the announcement that Fortis – Belgium's largest retail bank and the UK's third-largest car insurer – had been handed an 8.9 billion cash injection from the governments of Belgium, Luxembourg and the Netherlands, in return for a 49 per cent stake. The move was agreed late on Sunday after the bank's shares plunged amid insolvency fears.
As part of a deal, which is the biggest rescue yet of a European institution, Fortis must sell its stake in ABN, bought as part of a takeover last year by RFS – the name for the RBS-led consortium.
The buyer is expected to be ING Group, and analysts warned that a fire sale of the assets, still practically held in RFS, could damage the value of RBS's ABN holdings.
The deal is expected to be done in the next fortnight and is likely to raise far less than the 19 billion Fortis paid a year ago.
Analysts at Cazenove said RFS was in an entirely different position to Fortis, which was said to have been having difficulties integrating ABN assets into its operations.
"The problems of Fortis stem from weak capital ratios and toxic assets, both of which reside outside of RFS," Cazenove said. "The plight of Fortis does not have any direct capital implications for RBS."
Alex Potter, an analyst at Collins Stewart, told The Scotsman that, because Fortis had paid for its share of ABN, "almost no matter what happens to Fortis, I struggle to see how RBS loses much money".
He went on: "There will be collateral damage to the ABN businesses RBS has held on to, but I would be surprised if the damage was as bad as share prices suggest."
Eric Spreng, of Redmayne Bentley, pointed out that RBS shares had been in demand yesterday, indicating that traders believed the price to be too low.
He went on: "I don't think anything specific has happened to RBS, but they seem to be indirectly affected by the announcement, and that's why they have been carved up more than others."
The ABN deal was spearheaded by Sir Fred. He had won praise for his takeover of NatWest, but some felt the ABN venture was mistimed. He bought at the height of the market, before the credit crunch bit.
He was forced to go cap in hand to shareholders for 12 billion in April after RBS was hit with enormous write-downs from exposure to the credit crunch. Shares – now worth 181p – were offered at 200p.
RBS reported a half-year pre-tax loss of 691 million in August, its first loss in 40 years as a public company.
One City source said last night: "I'm stunned Fred Goodwin is still there, and it's absolutely outrageous we have fired no executives yet in the UK. It is laughable."
Mr Spreng added: "I don't think RBS has the same problems on the mortgage books, but who knows? We thought that with other banks. It's amazing how they are all coming out of the woodwork."