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RBS Seeks Billions in Record Offering

By JANE WARDELL,

Posted: 2008-04-22 13:00:34

LONDON (April 22) - The Royal Bank of Scotland announced the biggest stock sale in British corporate history Tuesday, asking shareholders for $23.9 billion to shore up finances after revealing new and extensive losses from exposure to bad U.S. mortgages.

Analysts believe the offer, a humiliating turn for RBS after last year's costly buyout of Dutch bank ABN Amro, will likely be followed by similar offers from other major British banks short of cash.

"This is a difficult time for the financial services industry, and it has presented us with specific challenges," said Chairman Tom McKillop as RBS said it expects further write-downs of 5.9 billion pounds ($11.7 billion) on mortgage-backed securities, collateralized debt obligations and other assets related to a credit crisis that has spread globally from the U.S.

The International Monetary Fund estimates that losses from the credit crunch across the banking sector worldwide could eventually reach $1 trillion.

RBS, Britain's second-largest bank, follows Citigroup, UBS, Merrill Lynch and JPMorgan Chase in turning to investors for more capital.

"What will be hard for many investors to stomach is that write-downs have been increased so massively compared to those announced just seven weeks ago," said Charles Stanley analyst Nic Clarke. "This makes management look like they have either been too optimistic or that they are now 'kitchen sinking."'

Bank of England Governor Mervyn King has said he is "pleased that banks have recognized the need to raise capital," adding that "we will see more of it in the coming weeks."

RBS timing may help the bank, analysts said.

"RBS may have lost the element of surprise as the news was well flagged, but will nonetheless benefit from being first to the plate as this announcement will inevitably lead to cash calls from others," said Richard Hunter, head of UK equities at Hargreaves Lansdown Stockbrokers. "In addition, the depth of the discount on the shares being offered will almost certainly ensure a healthy take-up from existing investors."

Royal Bank of Scotland Group PLC said it will seek approval for the rights issue from shareholders next month during its annual meeting. Current investors will be offered 11 new shares for every 18 existing shares at 200 pence ($3.98) each.

RBS stock was trading 4 percent lower at 357.5 pence ($7.13) on Tuesday.

RBS reserves have been depleted not only by the global credit squeeze, but also by last year's acquisition of ABN Amro. RBS led a consortium of other banks in the 70.5 billion euro deal, which was criticized at the time as being too pricey. That was before the bottom fell out of the credit markets.

"You could call it unfortunate," McKillop said on Tuesday, that the ABN AMRO deal had been done "at a time when bank valuations were much higher than they are now."

RBS said it believed it would be able to take advantage of growth opportunities after the rights issue. It added that it also intends to dispose of its insurance business and other smaller assets.

"The board unanimously believe that our executive team has all the ability to steer the bank successfully through this tricky period in financial markets," McKillop said. "This is the time for us to get going and deal with the situation."

The RBS offering exceeded last year's rights issue by London-listed Fortis, which issued 13.2 billion euros in new shares to fund its part of the ABN Amro takeover.

Moody's Investors Services said it may downgrade RBS' B+ financial strength rating and the Aa1 senior debt rating of the group.

The review "reflects concern about RBS's exposure to volatile capital markets, as also shown by the magnitude of writedowns on credit market exposures, against the ongoing implementation and execution risk of the ABN Amro acquisition and the heightened uncertainty with regards to the U.K. economy," Moody's said.

Copyright 2008 The Associated Press. The information contained in the AP news report may not be published, broadcast, rewritten or otherwise distributed without the prior written authority of The Associated Press. All active hyperlinks have been inserted by AOL.

2008-04-22 07:12:53

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31 comments

Donut999 01:07:11 PM Apr 22 2008

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ironic that the fed is repeating the same mistake banks and other finan institutions made 02-06 with consumers. loaning money to people with inadequate collateral (called down payment) and questionable ability to pay back loans. now the financials are the in the same position. they go to the window with questionable collateral, no assurance of payback, and the fed gives them cheap dollars.

interesting that bank of england is finally doing something, but, much slower,
and only letting them have 70 to 90 cents on the dollar for just primo paper.
maybe the fed should "take a lesson".

Cadnr 12:02:25 PM Apr 22 2008

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Last Friday I told you that next week the Dow will be in the minus and wipe out any previous gains. The first two days this week. The Dow in munus territory. How sweet it is! Boomers. Any money left in your 401K's? If yes, don't worry Wall Street will make sure there won't be.

Cadnr 11:55:14 AM Apr 22 2008

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A word to the wise. Make certain your accounts with the banks are not over the amount the FDIC insures. Major banks are getting ready to close.

Winninghamk 11:27:44 AM Apr 22 2008

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Tomhollymi 09:24:52 AM Apr 22 2008
RBS fell in line with the American banks with greed. The feds will do nothing to ease the pain. The two wars will go on and drain our finances and the price of gas will remain high for we have oil men running our government, bush/chaney. The American voters voted for this.
==================
WE didn't vote for this - the judges appointed by bush sr made sure that our votes didn't count. Twice selected - never elected

AJGORM 11:15:24 AM Apr 22 2008

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seek more money from investors. Where do they get this money they all seem to find investors with billions to spare ? ?

Juanhalie 11:12:48 AM Apr 22 2008

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Gatorade may be more expensive than gas, but I don't use twenty gallons of gatorade each week to get to work.

AJGORM 11:08:55 AM Apr 22 2008

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We can fight ourselves to save us from ourselves.

XxNeVerTo0LaTexX 10:58:46 AM Apr 22 2008

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Is it time to get mad yet ?

XxNeVerTo0LaTexX 10:54:59 AM Apr 22 2008

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Is it time to get mad yet ?

Tmharel 10:35:18 AM Apr 22 2008

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Bill Gates and Donald Trump earned their wealth.
They're not the ones ruining the economy.
It's our own leadership that allowed the "Foreign Speculators" to buy up our ports and homes and land and corporations that are selling us all down the river.
But it's kind of Ironic isn't it that during the "Housing Boom" the Speculators bought up as much of the "Mortgage Market" as they could get their hands on, then the "Market" went Bust and they are all scrambling to cover their rear ends.
I say, "let it all fall down".

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31 comments