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RBS to ask shareholders for cash RBS to ask shareholders for cash
(10 minutes later)
Britain's second largest bank, Royal Bank of Scotland, is to ask shareholders for about £10bn of extra cash to improve its financial position.Britain's second largest bank, Royal Bank of Scotland, is to ask shareholders for about £10bn of extra cash to improve its financial position.
RBS will raise the money from existing investors through one of the biggest rights issues in corporate history.RBS will raise the money from existing investors through one of the biggest rights issues in corporate history.
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.
It's the quid pro quo for the Bank of England's new scheme to pump money into the banking system Robert Peston, BBC business editor Read Robert Peston's blogCheck RBS share priceIt's the quid pro quo for the Bank of England's new scheme to pump money into the banking system Robert Peston, BBC business editor Read Robert Peston's blogCheck RBS share price
"I understand that next week they will announce a massive rights issue, that's a demand for new cash from their shareholders," said BBC business editor Robert Peston."I understand that next week they will announce a massive rights issue, that's a demand for new cash from their shareholders," said BBC business editor Robert Peston.
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.
'Sharing pain''Sharing pain'
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.
WHAT IS A RIGHTS ISSUE? Companies issue extra shares to raise money They are offered to existing shareholders, usually at a discount to the current share priceShares are offered in proportion to existing holdings, so if you own 10% of the old shares you are offered 10% of the new ones
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.
Liberal Democrat treasury spokesman Vince Cable supported the idea of a rights issue in addition to the Bank of England's proposals.Liberal Democrat treasury spokesman Vince Cable supported the idea of a rights issue in addition to the Bank of England's proposals.
"It's positive and it's necessary and it's got to happen for all of the big banks," he told the BBC."It's positive and it's necessary and it's got to happen for all of the big banks," he told the BBC.
"Essentially this is all about sharing pain - shareholders have got to accept that any losses arising from the credit crunch accrue to banks and not to the taxpayer.""Essentially this is all about sharing pain - shareholders have got to accept that any losses arising from the credit crunch accrue to banks and not to the taxpayer."
Analysts expect other banks to follow RBS by going to the market for extra capital.Analysts expect other banks to follow RBS by going to the market for extra capital.
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.
Takeover moveTakeover move
RBS shares fell 2.4% in late trading on Thursday as rumours of a rights issue began to circulate and fell by another 3% in morning trading on Friday.RBS shares fell 2.4% in late trading on Thursday as rumours of a rights issue began to circulate and fell by another 3% in morning trading on Friday.
HAVE YOUR SAY This is an acid test of confidence in the banks and RBS Jim Hunt, Oxford Send us your commentsHAVE YOUR SAY This is an acid test of confidence in the banks and RBS Jim Hunt, Oxford Send us your comments
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," he said."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," he said.