THE Royal Bank of Scotland Group said yesterday that it had suffered a further 5.9 billion pounds (US$11.7 billion) in losses from the United States subprime mortgage crisis and needed 12 billion pounds in new capital.
It said it would be asking shareholders to approve a rights issue that will offer 11 new shares for every 18 existing shares at 200 pence (US$3.98) a share.
RBS said it expects further write-downs on mortgage-backed securities, collateralized debt obligations and other assets hit by the US troubles of 5.9 billion pounds before taxes, or 4.3 billion pounds. RBS shares fell 3.3 percent to 360.25 pence in London.
The company joins Citigroup, Swiss bank UBS and other big financial institutions in being forced to write down billions in assets and turn to investors for more capital. The banks have had to take losses on securities backed by mortgages to people with shaky credit.
"Following the rights issue, RBS believes that it will be in a strong position to realize the substantial value in its UK and international franchises and to take advantage of the growth opportunities available to it," the company said.
RBS said it also intends to dispose of its insurance business and other unidentified, smaller assets.
RBS, Britain's second-largest bank by market capitalization, stretched its reserves last year in leading a consortium, including Belgian-Dutch group Fortis and Spain's Banco Santander, in the takeover of Dutch giant ABN Amro Holding NV. Then it was hit by the freeze-up of the market in securities based on mortgages.
The bank said it had raised its targets to maintain a Tier 1 capital ratio of between 7.5 percent and 8.5 percent and a core Tier 1 capital ratio in excess of 6 percent.
"This is a difficult time for the financial services industry, and it has presented us with specific challenges. Central to these has been the question of our capital ratios, which have been the focus of much attention, both internal and external, over recent months," said RBS Chairman Sir Tom McKillop. "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 percent to 8 percent over a three-year period, but in light of the current market environment, this level and timing are considered no longer appropriate."
RBS Group's operations in Britain include the Royal Bank of Scotland, Ulster Bank and Natwest.
Richard Hunter, an analyst at Hargreaves Lansdown Stockbrokers, said RBS would benefit from being the first of Britain's big banks to go to its shareholders for a capital injection.