Taxpayers ‘own’ 57.9% of bank after bail-out

Nov 29 2008 by Iain Laing, The Journal

THE Royal Bank of Scotland has confirmed it is now majority owned by the taxpayer after a £20bn bail-out by the government.

The Edinburgh company, which was Britain’s second biggest bank until the credit crunch struck last year, said yesterday that its current investors had snubbed its call to raise £15bn and had thus left nearly all the new shares in the hands of taxpayers, who now own 57.9% of the business.

The bank announced that just 56m of the new shares being issued had been bought, just 0.24% of the total.

Only a handful of investors took up the offer to subscribe to new shares at 65.5p because the bank’s share price had been trading below that level, giving them little incentive to support the cash call.

The government is also buying £5bn of preference shares which need to be paid off before ordinary shareholders are able to receive dividends again.

Stephen Hester, RBS chief executive, said: “We regret that existing shareholders did not take up their pre-emptive rights but understand that market sentiment toward the banking sector made this uneconomic in the short term.

“We must put the past behind us and move forward with a clear focus on what we need to do next. There remain substantial uncertainties and challenges outside our control but for our part the job is under way.”

The bank’s directors – including the departing former chief executive Sir Fred Goodwin – had agreed to take part in the share sale and like the taxpayer are already sitting on losses as the shares as worth less than the 65.5p they paid for them.

The failed capital raising comes just months after an original £12bn rights issue by the bank before the financial crisis deepened in September. At the time, the £12bn cash call was the largest rights issue in UK history.