RBS to Raise

123jump.com Staff
22 Apr, 2008
New York City

Royal Bank of Scotland today announced its plan to sell assets, raise capital and cut costs. The battered bank vastly overpaid for its recent acquisition of investment banking and Asian operations of ABN Amro. The bank now suffering from losses in mortgage loans and slow down in investment banking business has seen its Tier 1 capital ratio as low as 6%. RBS plan to raise

[R]9:00AM New York – Royal Bank of Scotland plans to conduct the largest pubic offering ever in the UK.[/R]

Royal Bank of Scotland today announced its plan to sell asset, raise capital and face the reality of expensive acquisitions made in the last two years.

RBS, after months of denying that it needs additional capital to improve its balance sheet announced to raise £12 billion. The battered bank will issue 11 new shares for every existing 18 shares, which will dilute existing shareholders stake by 66%.

The bank will also dispose-off asset that will generate £4 billion net of tax.

The combined actions of capital raising, cost cutting and asset sale will help the bank to lift its Tier capital ratio above 8% from the current 6% and raise its core capital ratio above 6% from the current 4% by the end of the current calendar year.

RBS has to this date never accepted the fact that it vastly overpaid for its recent acquisition of ABN Amro investment banking unit and has a very thin capital base. Even in the press release issued today, the chairman of the bank laid the blame on the market conditions rather than its past mistakes.

RBS paid 14.3 billion euros or $23 billion for ABN Amro investment banking units and its Asian operations.

Chairman Tom McKillop in a press release said, “It was the Board’s declared intention to rebuild our Tier 1 capital to the middle to upper end of our historic range of 7% to 8% over a three year period, but in light of the current market environment, this level and timing are considered no longer appropriate.”

Rights issue

The proposed rights issue will raise proceeds of £12.0 billion, net of expenses. The issue is formed on the basis of 11 new shares for every 18 existing shares at an issue price of 200 pence per RBS share. This represents a 34.9% discount to the theoretical ex-rights price and 46.3% discount to the closing price of RBS shares of 372.5 pence per share on 21 April 2008.

RBS stock in London and New York trading lost nearly 40% of its value in the last 12 months of trading and dropped 4% after the release of its recapitalization plan.

For now RBS lass left its dividend payout ratio unchanged at 45% but dividend per share will drop significantly after the issue of new shares.

Quarterly business update

In the quarterly business update RBS said that UK retail and commercial assets rose 12% and asset under management increased 15% in its wealth management unit.

In the first quarter of 2008, RBS has achieved an 11% share of net new mortgage lending at an average loan to value of 64%.

RBS continues to expect to achieve ABN Amro purchase integration benefits totaling €2.3 billion by 2010, compared with its original estimate of €1.7 billion.

RBS reported revenue in 2007 rose to £33.49 billion from £31.73 billion a year ago and operating profit increased to £10.3 billion from £9.322 billion in 2006. Asset impairment losses increased to £2.09 billion from £2.00 billion in 2006.

The bank has risk weighted asset of £490 billion and stock is trading at a market value of £39 billion.

In New York trading RBS ((RBS)) fell 26 cents to $7.23.