$47b Bill To Rescue Top British Bank

Sun Herald

Sunday November 30, 2008

By EMILY FLYNN VENCAT LONDON

THE Royal Bank of Scotland Group says the British Government will take majority control of the bank - buying close to a 60 per cent stake - after its shareholders shunned a stock offering.

RBS, which has indicated it could post its first annual loss this year, said investors bought just 0.2 per cent of shares offered to them in a #20 billion ($47 billion) Government plan to recapitalise the bank. The offer expired on Friday.

Under the terms of the plan, the Government agreed to buy any shares not bought by investors. As a result, it is expected to buy nearly all the shares, spending #15 billion on ordinary shares and #5 billion on preference shares.

The British Treasury will then own 57.9 per cent of the bank, sitting on an immediate paper loss on its investment of about #5 billion.

The global financial crisis took a fresh toll on economies from Asia to Europe on Friday, with Japan and India suffering setbacks and Sweden falling into recession.

Japan slipped deeper into recession with factory output tumbling 3.1 per cent and consumer spending dropping 3.8 per cent in October, official data showed.

Sweden joins Ireland, Italy and Germany as European Union members in recession.

The RBS deal forms the largest part of the British Government's plan to recapitalise banks.

Last month, RBS, Lloyds TSB Group and HBOS agreed to sell a combined #37 billion worth of stock to shore up their balance sheets.

Shares in RBS were roughly flat at 55 pence in early trading on the London Stock Exchange, as the market had expected that the Government would take a majority stake.

Last week, shareholders approved the capital raising, though it was clear that ordinary investors would be unlikely to buy the new shares because they were selling for 65.5 pence - about 28 per cent more than the existing share price.

RBS shares were above #3.80 last December and above #2 as recently as September 26.

The bank is expected to buy the preference shares back from the Government as soon as possible because it will be forbidden from paying dividends to ordinary shareholders while the preference shares are outstanding.