RBS seeks cash amid credit crunch

 

Britain's Royal Bank of Scotland was set to ask shareholders for a massive cash boost after being hit by sub-prime-linked losses and surging costs related to its ABN Amro takeover, reports said on Friday.

 

British media claimed that RBS would seek to raise between £5and £12 billion ($10-24 billion; Dh36.8 or Dh88.32 billion) next week to improve its finances by issuing shares.

 

The country's second biggest bank said in response: "RBS notes recent speculation about a possible rights issue. RBS confirms that its interim management report covering trading performance and capital will be made next week."

 

One paper, The Daily Telegraph, reported that the group wanted to tap shareholders because of a need to combat sub-prime-related write downs and high costs caused by the record-breaking takeover of ABN Amro. It did not name its source, however.

 

The Financial Times, citing people familiar with the matter, said a rights issue was one of a number of options being considered and stressed that RBS management had not reached any decisions.

 

The business daily also speculated that such a move could trigger a wave of similar offerings by other British banks.

 

Many leading global banks are struggling with the impact of the collapsed US sub-prime home loan market and the subsequent global squeeze on credit.

 

On Friday, US banking giant Citigroup reported a first-quarter net loss of $5.1 billion dollars (Dh19 billion) after taking $6 billion (Dh22 billion) in write-downs related to the sub-prime mortgage crisis in the United States.

 

In Britain this week, Prime Minister Gordon Brown called for the country's banks to reveal the full extent of their sub-prime losses to draw a line under recent turmoil on world financial markets.

 

A raft of banks has suffered heavy losses owing to complex securities products that were backed by loans given to US homebuyers with risky credit histories.

 

RBS had revealed that strains from the global squeeze on credit cost the group £2.5 billion last year, in annual earnings published in February.

 

The Daily Telegraph added on Friday that the bank's capital reserves had been weakened by its leading role in a successful consortium takeover of Dutch group ABN Amro.

 

A European consortium led by RBS and grouping Belgian-Dutch company Fortis and Spain's Banco Santander bought ABN Amro for $100 billion (Dh368 billion) in 2007 in the biggest-ever takeover in the global banking sector.

 

"RBS mounted a robust defence of their capital base, and of the ABN Amro deal, at the results seven weeks ago, so this (the rights issue) does signal a major U-turn," Collins Stewart banking sector analyst Alex Potter said on Friday.

 

Investment banks Goldman Sachs and Merrill Lynch were arranging the issuing of new stock for existing shareholders, said The Daily Telegraph.

 

Such a move could raise serious questions about the future of RBS chief executive Fred Goodwin, it added.

 

The US sub-prime crisis sparked a worldwide squeeze on credit, which began last August, as commercial banks became reluctant to lend to each other.

 

Brown's Labour government was forced to nationalise home lender Northern Rock last February after the group ran into sever trouble sourcing credit to finance its operations.

 

The Royal Bank of Scotland holds its shareholders' annual general meeting next Wednesday. (AFP)