RBS looks to shareholders for £12bn of new capital

Apr 23 2008 by Iain Laing, The Journal

THE boss of Royal Bank of Scotland dismissed calls for his resignation after asking shareholders to pump in £12bn of new capital.

Sir Fred Goodwin, who declared the finances of the bank, hit hard by the credit crunch, were worse than two months ago, said that he was still “100% focused on taking the bank forward”.

He was speaking after unveiling details of what is thought to be Britain’s biggest ever rights issue, as well as another £5.9bn of investment write-downs linked to the credit crunch.

Sir Fred, whose £4.2m pay package last year included a £2.9m bonus, said: “I was an advocate for the capital base and the metrics we used before – I acknowledge that. But given the change we have seen in the world, it’s just the right thing to do – I am absolutely convinced about that.”

Asked if he was considering his position, he said: “There are more important issues here. We have made the announcement this morning and are going to be talking to our shareholders. I can understand this is not an easy time for shareholders. I am one too.”

RBS, which is Britain’s second biggest banking group, said it would issue 11 new shares for every 18 existing shares at a price of 200p per share.

That represents a discount of nearly 50% on RBS’s closing share price yesterday of 372.5p. The group is also considering offers for its insurance arm, which includes Direct Line and Churchill Insurance and could raise as much as £5bn.

The moves come as the group seeks to improve its capital base following last year’s near £50bn acquisition of Dutch Bank ABN Amro, and the billions of pounds of investment write-downs.

Sir Fred, 49, received steadfast backing from his chairman, Sir Tom McKillop. But Sir Tom did say that the board would be recruiting three extra non-executive directors “with experience appropriate to the enlarged group’s operations”.

He said: “The board unanimously believes that our executive team have all the ability to steer the bank successfully through this tricky period. This is the time for us to get going. We are forward-thinking and forward- acting.”

Last year NatWest owner RBS took a £2.5bn hit from the credit crunch, with profits also rising to £10bn.

When the 2007 results were released in February, Sir Fred signalled that he was happy with the capital position.

But further turmoil in the financial markets since that time – including the near collapse of US investment bank Bear Stearns – had led directors to revisit the numbers, the group said.

RBS said: “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, the board has concluded that it is now appropriate for RBS to accelerate its plans to increase its capital ratios.”

The group’s capital raising comes a day after the Bank of England announced details of a £50 billion scheme to end the credit crunch by allowing banks to swap their mortgage-backed assets with Government bonds.

Yesterday Bank of England Governor Mervyn King said banks were paying the price for excessive lending of the past.

He also welcomed moves by banks to raise capital through mechanisms such as rights issues.

Page two: A look back at the run-up to the bank's problems.