LONDON BRIEFING: FOR A man whose job is on the line, "Fred the Shred" had a surprisingly confident air about him yesterday as he hit the City of London with its biggest-ever cash call - a mammoth £12 billion (€15bn) rights issue aimed at shoring up the finances of Britain's second-largest bank, writes Fiona Walsh.
Fred Goodwin, chief executive of Royal Bank of Scotland, earned his nickname during a career of cutting costs and slashing jobs in the banking industry. Now, as the full cost of Goodwin's misplaced confidence becomes clear, the last name on the job loss list may well be his.
The rights issue is the biggest in European corporate history - and more than double the previous British record, set by British Telecom with its £5.9bn cash call seven years ago. But RBS also plans to raise another £4bn or more through disposals, including the prized household- name insurance businesses, Churchill and Direct Line.
For months, Goodwin has been insisting that RBS had no need to raise funds. He pressed ahead with the record-breaking takeover of the Dutch bank ABN Amro last year even as the subprime housing shakeout in the US spiralled into the global credit crunch. Barely a month ago, he was still repeating his mantra that RBS was in good shape.
It is hard to square that confidence with the news yesterday that RBS is writing down another £5.9bn of toxic loans, many of which are likely to have come from the newly acquired Dutch bank. Goodwin's somewhat wide-eyed explanation - "the world has changed" - seemed hopelessly inadequate although, to be fair, there probably was some truth in it. It has done nothing to appease RBS shareholders. They have seen the value of their investment in the bank halve over the past year, and are seething. They face the choice of stumping up the cash or seeing their holdings diluted.
RBS chairman Tom McKillop, whose own position is far from secure, has expressed his support for Goodwin and the rest of the board. But they are in for a very uncomfortable time in the weeks ahead as they attempt to persuade investors to back the rights issue.
The process began yesterday as Goodwin and McKillop embarked on a charm offensive in the City of London, with a series of meeting with major institutional investors. Today, in Edinburgh, they face the massed ranks of RBS shareholders at the bank's agm. It is unlikely to be a happy gathering. Shareholders may feel they have little to thank their board for, but, amid the U-turns and write-downs at RBS, there are some positives.
Once the rights issue goes through, the bank will be transformed from the most highly leveraged in western Europe to one of the most strongly capitalised in the industry. Its core tier 1 capital will be in excess of 6 per cent, compared with 4.5per cent at the end of 2007.
In asking shareholders to raise £12 billion, RBS should at least have ensured that it will not have to come back for more at a later date. And the aim in writing down £5.9 billion is to get all the bad news out of the way at once.
Fear of the unknown - and the uncertainty of what horrors may be lurking within a bank's balance sheet - is what has killed the credit markets stone dead in recent months. At least with RBS the worst in now out in the open - or at least it should be.
The bank also has "first-mover" advantage in the cash-raising stakes. Other banks, particularly Barclays and HBOS will almost certainly be forced to follow suit and, until they do, their shares will be dogged with uncertainty.
There are some reasons why Fred has not already been shredded. Raising £12bn is a tall order for a company with a well-regarded chief executive, but raising such a huge sum without a CEO, even one who has fallen foul of investors, would be harder still. And, whatever his failings, Goodwin still has his legendary skills as a cost-cutter; skills which the bank needs more than ever if it is to survive the current turmoil.
He would be unwise to take too optimistic a view of his own future, however. As one of RBS's institutional investors made clear yesterday, while he has their support for the time being, he will need to work hard to maintain it in the future.
Fiona Walsh writes for theGuardian newspaper in London
