RBS takes further £206m hit as it details fundraising
By Maggie Urry
Published: November 4 2008 07:46 | Last updated: November 4 2008 07:46
Royal Bank of Scotland on Tuesday detailed the terms of its £19.7bn capital raising, while revealing the extent of further credit market losses in its third quarter.
The bank took a further £206m writedown on its credit market assets in the quarter after a £5.9bn reduction in the first half. However, it also followed other banks by reclassifying assets previously designated as held-for-trading, which had the effect of boosting operating profits by £1.2bn. A £682m charge against reserves was taken against these assets.
RBS also warned that the worsening economic background has caused the proportion of underperfoming loans in its portfolio to rise from 1.47 per cent to 1.72 per cent over the quarter. As a result of that and likely further credit market writedowns in the fourth quarter, it said full year profits would be hit but it could not predict by how much.
Operating profit was 8 per cent down before the credit market writedowns reflecting increased impairments in the business.
To raise the capital, the group is making an 18-for-13 placing at 65.5p a share, the price it set last month, which will be underwritten by the UK Treasury, which is also buying £5bn of preference shares. The Treasury could end up with a near 60 per cent stake, but it said the government’s stated intention was “to respect the commercial decisions of RBS”.
RBS repeated its intention to repay the preference shares “as soon as it is prudent” in order to resume a “sustainable and progressive dividend policy”.
It said the extra capital would lift its core tier 1 capital ratio from 5.2 per cent at the end of September to a notional 7.9 per cent at the same date. However, it said by the year end that ratio would depend on the size of profits and writedowns in the final quarter.
The board, where Stephen Hester is to take over as chief executive later this month, said the decision to raise fresh capital so soon after its £12bn rights issue in June, which was made at 200p a share, was reached “with considerable regret as we recognised the impact it would have on shareholders.”
It said it needed to move from “capital rebuilding to capital strength” and would now institute a strategic review to refocus the bank and achieve “appropriate risk-adjusted returns” with a “reduced reliance on wholesale funding and lower exposure to capital-intensive businesses.
Copyright The Financial Times Limited 2008
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