ROYAL Bank of Scotland has today issued a statement to shareholders hinting that it is on the verge of a controversial rights issue.
The Edinburgh-based bank is said to be poised to raise between £5 billion and £12bn through the rights issue as it bids to plug a gap in its finances caused by the credit crunch.
And it today moved to tell shareholders through the London Stock Exc
hange that it "notes" the speculation and confirms that an interim management statement will be made next week.
But any rights issue is widely expected to pile pressure on chief executive Sir Fred Goodwin, with several large shareholders understood to be demanding that any cash call is accompanied with his resignation.
He is facing blame for forcing through the RBS-led consortium's £57bn break-up of Dutch bank ABN Amro even though the credit crunch had already started to grip.
Shares in RBS fell 2.4 per cent to 366p yesterday as speculation about the rights issue spread through the market. But following today's announcement, the share price became steadier and sat at around 364p shortly before midday.
In its statement to shareholders this morning, RBS said: "The Royal Bank of Scotland Group plc notes recent speculation about a possible rights issue.
"RBS confirms that its interim management statement covering trading performance and capital will be made next week."
News of the bank's plan came after the Prime Minister, Gordon Brown, said lenders must disclose the scale of their debt. The Financial Services Authority (FSA) is thought to have been involved in detailed discussions with RBS over the rights issue and the Treasury is also understood to have been made aware of the situation.
The bank's resources have been stretched by its participation in the £57bn break-up of Dutch lender ABN Amro.
In February, it said that write-downs linked to the credit crunch had risen to £2.5bn, with £900m of them being at ABN Amro.
Much of the latest speculation has been caused by the decision by senior RBS executives to cancel a series of meetings with major shareholders. James Eden, banks analyst at Exane BNP Paribas, said: "As this news filters through the market it is inevitable that speculation resurfaces about a possible rights issue or material asset disposal, possibly to be announced as soon as next week."
Following the steadying off of RBS's share price this morning, Justin Urquhart Stewart, a director at Seven Investment Management, said: "The good news is when you get RBS coming out (it shows) banks are taking action to shore up their capital position and that means they must have a better idea of precisely what exposure they have. They can only come to the market once. You cant keep coming back and doing it."
The full article contains 472 words and appears in Edinburgh Evening News newspaper.
