Apr
22
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Royal Bank of Scotland (RBS) is asking shareholders for an extra £12bn as the bank seeks to shore up its finances.
The rights issue was announced as part of a trading update and is one of the largest seen in UK corporate history.
The firm also announced a write-down of £5.9bn before tax, following its exposure to the credit markets.
RBS added that it was reviewing its insurance unit, which could lead to the sale of its Churchill Insurance and Direct Line businesses.
Market conditions
RBS, which played a leading role in last year’s takeover of the Dutch bank ABN Amro, said it needed to increase its cash base and a rights issue was the best option.
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 price
Shares are offered in proportion to existing holdings, so if you own 10% of the old shares you are offered 10% of the new ones
Under the terms of the rights issue, 11 new shares will be issued for every existing 18 shares at 200 pence each.
The bank said the extra money was needed in light of “severe and increasing deterioration in credit market conditions, the worsening economic outlook and the increased likelihood that credit markets would remain difficult for some time”.
In its latest update, which covered the period from 31 December to 22 April 2008, RBS said global banking and markets had been “acutely affected by credit market conditions” especially in March.
BBC business editor Robert Peston said that the bank would “retain more capital in its balance sheet to meet the risks of default by borrowers than it had been doing”.
RBS said that, following its integration with ABN, it aimed to cut staff numbers by more than originally planned, and added it was seeking to cut costs by 2.3bn euros, up from an earlier estimate of 1.7bn euros
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