Monday morning business bulletin

Apr 21 2008 By Karen Dent

The UK’s second biggest bank today confirmed it was considering plans to ask shareholders for billions of pounds in extra funding.

Royal Bank of Scotland told the stock market that it was "considering a rights issue" and would make a further announcement "in due course".

The bank - which could ask shareholders for as much as £12bn - is looking to strengthen a balance sheet weakened by losses from the credit crunch and its acquisition of Dutch rival ABN Amro last year.

It is expected to give more details of its plans to investors tomorrow. RBS is set to be the first in a succession of major banks to call on shareholders for extra cash as the credit crunch bites.

But chief executive Sir Fred Goodwin will also come under pressure from investors asked to stump up the money following the expected move at its annual meeting in Edinburgh on Wednesday.

The London market saw gains for banks and housebuilders today as markets awaited the details of the Bank of England’s expected £50bn rescue package for the banking sector.

The FTSE 100 Index was 20.4 points higher at 6076.9 in early trading ahead of the announcement, which should see banks able to trade their riskier investments for Government-backed bonds to ease the credit crunch.

Expectations of help from policymakers saw banking stocks make gains, led by Alliance & Leicester, up 18.5p at 551.5p. Halifax Bank of Scotland gained 18p to 576p and Royal Bank of Scotland was up 13.75p to 397.75p, despite confirming it was considering asking shareholders for more cash in a rights issue later this week.

The Bank bail-out was also seen as a positive boost for the housing market, lifting housebuilders. Persimmon rose 20p to 707.5p, or 3%, ahead of the news, while FTSE 250 stocks Taylor Wimpey and Redrow gained 5.25p to 164.25p and 8.25p to 298.25p respectively.

Business services firm Rentokil Initial warned today that its troubled City Link delivery business would make "significant" losses this year after a worsening performance.

Rentokil said problems with the merger of its City Link and Target Express operations - as well as weak trading - had plunged the business into bigger than expected losses during the first quarter of the year.

City Link racked up operating losses of £16.9m during the first three months of the year, compared to £10m of profits for the last quarter of 2007. Revenues also slid £12m to £96m during the period.

Previously Rentokil, which brought in a trio of former ICI directors last month to try and revive its fortunes, said City Link would break even this year. But new chief executive Alan Brown said: "The return of City Link to its former levels of profitability is likely to take some time."

In February, Rentokil’s previous management warned "unacceptable" performance from the unit would see group pre-tax profits fall significantly below 2007’s £142m.

The pound at 9am was US$1.9930 compared to US$1.9962 at the previous close, while the euro at 9am was £0.7960 compared to £0.788 pounds at the previous close.