Under the terms of its agreement with the government, the government agreed to buy any shares not purchased by investors. The Treasury will take up the remaining 22.9 billion shares and control 57.9% of the bank.
The RBS shares were on offer at 65.5 pence each, but held little appeal for investors because they traded well below that in the run up to the November 25 capital raising deadline, falling as low as 41.7 pence on November 18. RBS shares closed at 55 pence yesterday.
RBS was one of three British financial services firms that tapped government help to fulfill stricter capital requirements intended to help Britain's battered banks survive the credit crisis. Lloyds TSB and the mortgage lender HBOS, which have recently agreed to combine, also relied on the government to take up any shares they cannot sell to investors but some analysts warned that even those stricter capital rules might not guarantee the stability of Britain's banks as the turmoil in the financial markets continues.
The RBS was Britain's second-biggest before a run on its shares in September and October forced it into the arms of the government as investors became increasingly concerned about its capital position. The bank may now post its first annual loss in 40 years as bad loans rise, and has taken more than £7bn of credit losses this year. RBS will probably take more write-downs in the fourth quarter, newly-appointed chief executive Stephen Hester said earlier this month.
Outgoing RBS chief executive Sir Fred Goodwin and chairman Sir Tom McKillop apologized last week at a meeting in Edinburgh to approve the £20bn capital raising.
The bank is expected to buy the preference shares back from the government as soon as possible because it will be forbidden from paying any dividends to ordinary shareholders while the preference shares are outstanding.
The drastic fundraising plan comes on top of a £12 billion pounds rights issue by RBS earlier this year—at the time the biggest ever rights issue in Europe.
RBS has been one of the hardest hit European banks in the financial crisis because of its large exposure to sub-prime loans and its expensive purchase of ABN Amro bank just before the credit crunch.
Sources :
- Telegraph: RBS now 58pc owned by UK government, November 28, 2008 8:09AM GMT
- Breitbart: RBS says British government to buy bank majority, November 28, 2008 06:35 AM EST
- The International Herald Tribune: U.K. takes over Royal Bank of Scotland, November 28, 2008
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