RBS 'rules out' dividend cut to ease pressure

ROYAL Bank of Scotland is believed to have ruled out a dividend cut or rights issue to address the capital jitters in the banking system when it announces its full-year results later this month.

It is also believed reports that RBS would consider selling part of its minority stake in Bank of China (BoC) to raise cash are highly unlikely, unless a financial meltdown in the sector required the board to put all potential asset sales under the microscope.

RBS took its stake in BoC in 2005 for 900 million, and it has roughly trebled in value since.

Sir Tom McKillop, RBS's non-executive chairman, is understood to have met the bank's top-20 institutional shareholders during the past fortnight, in line with the bank's traditional practice at this time of year.

It is believed Sir Tom did not ask the institutions whether they would back a rights issue to stiffen RBS's balance sheet, but that some volunteered views that were mixed.

One banking analyst said: "There probably are some institutions out there who would be comfortable with the Royal raising cash in this climate. Others, undoubtedly, would prefer it not to happen. Remember, it was only two years ago that some institutions were pressing RBS for an additional capital return to shareholders, which led to a 1 billion share buyback."

Some RBS-watchers believe one possibility is for the divi not to be cut, but for the rate of growth to be reined in to beef up the balance sheet for possible contingencies.

In 2005 and 2006, the bank boosted its full-year dividend payment by 25 per cent following 12 previous years of rises of 15 per cent.

One analyst said: "Fred (Sir Fred Goodwin, RBS's chief executive] and the board could decide to avoid the adverse publicity of a divi cut, but rein in that rate of growth, citing the exceptional circumstances in the markets, to retain money."

An RBS spokesman said: "We made our position absolutely clear on capital ratios at the time of our trading statement in early December, that they were within our target ranges.

"Nothing has changed since then. Any announcement on the dividend will be made in the time-honoured manner at the time of the results."

RBS announced a 950 million write-down on its exposure to the US subprime mortgage market at the time of the trading update, with an additional 300m subprime write-down for the ABN Amro assets it acquired last autumn.

The 1.25bn hit was on the low side of City forecast ranges, and has led many analysts to predict RBS will have made profits of more than 10bn in 2007, despite the volatility in the worldwide banking market.

• RBS is understood to have been told by the main US financial regulator, the Securities and Exchange Commission, to hand over documents as part of the SEC's widening inquiry into the collapse of the subprime mortgage market.

The documents belong to RBS Greenwich Capital, the bank's debt capital markets business. There is no suggestion of wrongdoing by either Greenwich Capital or its parent.