ROYAL BANK of Scotland (RBS), the parent of the Ulster Bank group, is set to raise cash from its shareholders next week, industry sources said, in a move which analysts believe could raise over €12 billion and lead to similar action by other UK banks.
The rights issue, long rumoured in the market, comes as global banking giants from Citigroup to UBS seek to shore up battered balance sheets. But it would mark a U-turn for Britain's second-largest bank and the first major fundraising for a UK lender since the start of the credit crunch.
Analysts and shareholders said RBS chief executive Fred Goodwin might struggle to survive such a move, as it would underscore how ill-timed his decision was last year to lead a €71 billion takeover of the Dutch bank ABN AMRO.
But they said the cash call, which could be Europe's largest to date, would also raise hopes that banks were getting to grips with a credit crisis which has led them to rein in lending, with painful consequences for the global economy.
"It is right that these major banks should be taking a lead in raising new equity and rebuilding confidence," Richard Lambert, director-general of the Confederation of British Industry, said in a speech in Edinburgh.
Banks were the best-performing sector on Europe's equity markets yesterday, up 3.6 per cent. RBS stock, which has underperformed peers by some 10 per cent this year, ended up 4.9 per cent at 374p. RBS said in a statement yesterday that it noted speculation about "a possible rights issue", but offered no further comment. It is due to publish an update on its trading performance and capital on Wednesday, to coincide with its shareholder meeting.
An industry source with direct knowledge of the matter said that the fund-raising could coincide with a UK government plan to ease tensions in the mortgage market due as early as next week.
The move to shore up the balance sheet, some analysts said, could in fact be a condition imposed by UK authorities before they agreed to step in to boost liquidity in the market.
"It is something of a U-turn for Fred Goodwin. The fact that he has changed his mind so quickly would suggest there has been meddling from elements within the tripartite authority," Exane BNP Paribas analyst James Eden said, referring to UK regulators.
If government pressure is at least partly behind RBS's about-turn, analysts say other banks in sub-optimal capital positions, including Barclays, could follow - despite concerns of rekindling memories of 1980s emergency increases.
The RBS balance sheet has been stretched by its leading role in the takeover and break-up of ABN AMRO last year.
