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RBS 'prepares fundraising plan' RBS 'prepares fundraising plan'
(about 1 hour later)
Britain's second largest bank, Royal Bank of Scotland, is expected to ask shareholders for up to £12bn of extra cash to improve its financial position.Britain's second largest bank, Royal Bank of Scotland, is expected to ask shareholders for up to £12bn of extra cash to improve its financial position.
Several newspapers are reporting that RBS will raise the funds by selling shares to existing investors.Several newspapers are reporting that RBS will raise the funds by selling shares to existing investors.
The global credit crunch has meant banks worldwide are keen to shore up their capital positions - and it is thought others may follow RBS's move.The global credit crunch has meant banks worldwide are keen to shore up their capital positions - and it is thought others may follow RBS's move.
RBS, owner of NatWest, Ulster Bank and insurer Direct Line, has not commented.RBS, owner of NatWest, Ulster Bank and insurer Direct Line, has not commented.
In a statement, it would only confirm that it would give a trading update next week as planned. The update is due ahead of its annual meeting on Wednesday.In a statement, it would only confirm that it would give a trading update next week as planned. The update is due ahead of its annual meeting on Wednesday.
They now have the smallest cushion relative to risk on their balance sheet of any bank in Europe Alex Potter, Collins Stewart Check RBS share priceThey now have the smallest cushion relative to risk on their balance sheet of any bank in Europe Alex Potter, Collins Stewart Check RBS share price
Analysts stressed that this was not something that should worry people with accounts at any RBS banks.Analysts stressed that this was not something that should worry people with accounts at any RBS banks.
"This is not a customer issue, it's a shareholder issue," said Justin Urquhart Stewart from Seven Investment Management."This is not a customer issue, it's a shareholder issue," said Justin Urquhart Stewart from Seven Investment Management.
Takeover moveTakeover move
RBS shares fell 2.4% in late trading on Thursday as rumours of a rights issue began to circulate. RBS shares fell 2.4% in late trading on Thursday as rumours of a rights issue began to circulate and fell by another 1.2% in morning trading on Friday.
But the shares then opened up 3.9% on Friday, with other banking shares also rising.
Barclays rose 2.3%, Alliance & Leicester 2.1% and HBOS 2.0%.
Cash reserves at RBS were stretched by its leading role in last year's takeover of the Dutch bank ABN Amro.Cash reserves at RBS were stretched by its leading role in last year's takeover of the Dutch bank ABN Amro.
"Banks have to retain a certain cushion of cash relative to the amount of risk on their balance sheet," said Alex Potter, banking analyst at Collins Stewart."Banks have to retain a certain cushion of cash relative to the amount of risk on their balance sheet," said Alex Potter, banking analyst at Collins Stewart.
"Having spent the best part of 70bn euros ($111bn; £56bn) last year on the biggest bank in Holland, they now have the smallest cushion relative to risk on their balance sheet of any bank in Europe.""Having spent the best part of 70bn euros ($111bn; £56bn) last year on the biggest bank in Holland, they now have the smallest cushion relative to risk on their balance sheet of any bank in Europe."
Other banksOther banks
RBS is unlikely to be the only bank considering going to the market for extra capital.RBS is unlikely to be the only bank considering going to the market for extra capital.
HAVE YOUR SAY This is an acid test of confidence in the banks and RBS Jim Hunt, Oxford Send us your comments
Bradford and Bingley denied widespread reports at the weekend that it was planning to raise money in the same way.Bradford and Bingley denied widespread reports at the weekend that it was planning to raise money in the same way.
Heads of many of Britain's biggest banks, including RBS, had a meeting at Downing Street on Tuesday to discuss the continuing effects of the credit crisis.Heads of many of Britain's biggest banks, including RBS, had a meeting at Downing Street on Tuesday to discuss the continuing effects of the credit crisis.
The Bank of England is considering a plan to start accepting UK mortgage-backed securities in return for government bonds in an attempt to get banks lending to each other again, which in turn should ease up lending to individual borrowers.The Bank of England is considering a plan to start accepting UK mortgage-backed securities in return for government bonds in an attempt to get banks lending to each other again, which in turn should ease up lending to individual borrowers.
Analysts say that while a rights issue is most likely to be seen as a prudent, rather than desperate, move by RBS, it will also represent a U-turn for the bank's chief executive, Sir Fred Goodwin, who had previously insisted the bank did not need to tap shareholders for more cash. The Bank of England has also been encouraging banks to have this sort of rights issue, according to the BBC's economics editor Stephanie Flanders.
"We've been talking all week about what the government is going to do to help banks," she said.
"A lot of people have said, 'why can't shareholders help? They've made a lot of money from very big bank profits over the last few years.'"
Analysts say that while a rights issue is most likely to be seen as a prudent, rather than desperate move by RBS, it will also represent a U-turn for the bank's chief executive, Sir Fred Goodwin, who had previously insisted the bank did not need to tap shareholders for more cash.