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RBS soars on expectation of 20 bln pound injection

RBS soars on expectation of 20 bln pound injection

Royal Bank of Scotland PLC's shares soared 13 percent Thursday on expectations stockholders will vote in favor of a proposed 20 billion pound ($30 billion) investment from the government, which would shore up the beleaguered bank's balance sheet.
Shareholders are due to vote later Thursday on the plan to issue 15 billion pounds of new shares underwritten by the government, and sell 5 billion pounds of preference shares directly to the government.
Analysts expect RBS to receive the simple majority necessary to approve the deal, which will help the company survive the financial crisis. It has previously warned it will post its first ever annual loss this year.
RBS had initially hoped that much of the proposed offering, announced last month, would be bought by ordinary investors.
However, subsequent falls in its share price mean it is almost certain that the government will be left honoring its underwriting commitment to buy all 20 billion pounds of new shares.
That would leave the British Treasury owning 58 percent of the bank, and sitting on an immediate paper loss on its investment of around 5 billion pounds.
But it would be a boon to the bank's investors by giving the bank the capital to weather the financial crisis.
Market optimism that shareholders would approve the bailout sent the share price soaring 13 percent in Thursday morning trading on the London Stock Exchange to 48 pence ($0.71). But that is still a 28 percent discount to the share offer price of 65.5 pence.
The bank is expected to buy the preference shares back from the government as soon as possible because it will be forbidden from paying any dividends to ordinary shareholders while the preference shares are outstanding.
The drastic fundraising plan comes on top of a 12 billion pound rights issue by RBS earlier this year _ when the financial crisis had not yet reached its current size.
RBS is one of three British banks, along with Lloyds TSB Group PLC and HBOS PLC, to plan on taking government bailout money to survive the financial crisis.
Shareholders of Lloyds became the first to back the bailout plan on Wednesday, when they voted in favor of raising 5.5 billion pounds through the combined sale of preference shares directly to the government and issuance of new shares underwritten by the government.
Lloyds' shareholders also voted overwhelmingly in favor of a government-brokered takeover of rival HBOS on Wednesday _ a prerequisite for the bank receiving the bailout funds.
RBS has been one of the hardest hit European banks in the financial crisis because of its large exposure to subprime loans and its expensive purchase of ABN Amro bank just before the credit crunch.
At the vote meeting in Scotland's capital, Edinburgh, RBS Chairman Tom McKillop is expected to tell shareholders that he is "profoundly sorry" for the losses the bank has suffered in the financial crisis, according to the Scotsman newspaper.
RBS spokeswoman Linda Harper declined to confirm what McKillop would say ahead of his speech.


Updated : 2021-10-18 22:48 GMT+08:00