LONDON (Thomson Financial) - Royal Bank of Scotland Group Plc. unveiled a 12
billion pound rights issue aimed at shoring up its capital, and announced plans
to boost reserves by a further 4 bln stg through the sale of assets including
its insurance unit.
RBS also unveiled credit crunch-related writedowns of 5.9 billion pounds
before tax, up from 1.6 billion pounds at the end of 2007, but said its overall
performance had remained "satisfactory" in the first quarter, despite a downturn
at its GBM investment banking division.
RBS' rights issue, the biggest ever launched in the United Kingdom, is aimed
at replenishing the bank's capital reserves, depleted by last year's costly
acquisition of parts of Dutch rival ABN Amro and the impact of the credit
squeeze.
The move, which comes less than three months after the bank told
shareholders that a rights issue would not be necessary, is seen as an
embarrassing U-turn, prompting speculation that RBS Chief Executive Sir Fred
Goodwin might be forced to quit.
RBS said the decision to rebuild its capital aggressively had been taken "in
the light of developments during March including the severe and increasing
deterioration in credit market conditions, the worsening economic outlook, and
the increased likelihood that credit markets could remain difficult for some
time."
RBS Chairman Sir Tom McKillop said the bank's senior management, including
Goodwin, enjoyed the board's full support, adding that he saw no justification
for a "sacrificial lamb" to appease shareholder anger over the rights issue.
"There's no single individual responsible for these events, and to look for
a sacrificial lamb misses the whole point. We want to focus on going forward and
getting this right for our shareholders," McKillop told a news conference.
"But we recognise that this is a big ask of our shareholders, and we ask it
with a great degree of humility."
Shareholders taking part in the rights issue will be offered 11 new RBS
shares for every 18 shares they own at a price of 200 pence per share, a 46.3
percent discount to Monday night's closing price of 372-1/2 pence. The bank said
the issue was fully underwritten.
At the close, RBS shares were down 3.9 percent at 365 pence, valuing the
group at about 37 billion pounds, while the FTSE 100 ended down 0.3 percent at
6,034.7 points.
"RBS will benefit from being first to the plate as this announcement will
inevitably lead to cash calls from others. The task of rebuilding the capital
base and the bank's reputation as an investment has at last begun," said Richard
Hunter, head of equities at stockbroker Hargreaves Landsdown.
Analysts speculate that other thinly capitalised UK banks, including
Barclays Plc. and HBOS Plc., are likely to tap investors for cash in turn in the
weeks ahead.
RBS said it aims to raise its core Tier One capital ratio to in excess of 6
percent by the end of 2008, up from 4.5 percent at the end of 2007, and bringing
it closer to the European average of about 6.5 percent.
RBS' McKillop also quashed talk that the bank's re-capitalisation was
prompted by pressure from regulators or ratings agencies.
"This is very much the board's decision. We've not been asked to raise
capital by anyone," he said.
However, McKillop acknowledged that RBS' decision to lead a bid consortium
that bought ABN Amro for 72 billion euros in October, before the credit crunch
slashed the value of financial companies, had been poorly timed.
"Relative to valuations today we paid a very high price. We also increased
our exposure to wholesale markets at what turned out to be an unfortunate time,"
McKillop said.
Former ABN Amro businesses accounted for about one-third of RBS's total
writedowns.
The bank plans to pay its interim 2008 dividend in shares to preserve
capital, but will revert to a cash payout for the final dividend of the year.
RBS also confirmed that its senior managers will buy their full allocation
of shares in the rights issue.
myles.neligan@thomsonreuters.com
mn/jlc/mn/jlc
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