Royal Bank of Scotland's tentative plan for a cash call to trim the government's stake, potentially ahead of a move by rival Lloyds, was met with lukewarm enthusiasm today, sending its shares lower.
A source familiar with the matter said yesterday RBS chief executive Stephen Hester was gauging investor appetite for a share issue of up to £4billion, as the bank seeks to limit the increase in state ownership after a government-backed insurance scheme for bad debts is agreed.
RBS, which left investors nursing losses after a record £12 billion rights issue last year, declined to comment.
Shareholders and analysts said they were surprised by the mooted move, which will do little to substantially alter the state's holding, currently standing at 70 per cent.
But they said any step to take advantage of current market conditions would have to be swift -- if RBS is to act before any decision is made by Lloyds, which has said it is considering its own options around the insurance scheme, and before its own closed period begins next month, ahead of November earnings.
RBS shares were down 4.3 per cent at 53.9 pence at lunchtime.
Analysts said the bank could look to an accelerated book build, which would be swifter and easier than a traditional share issue and could allow it to sidestep a full prospectus, if it raises no more than 10 per cent of issued share capital, or just over £3 billion.
The British government has so far injected £20 billion of capital into RBS, taking a stake of around 70 per cent.
That could rise, however, if the bank goes ahead with plans announced in February to participate in the government-backed Asset Protection Scheme (APS) to protect £325 billion of assets. As part of that plan it will take a further £19.5 billion government cash injection -- which includes a £6.5 billion fee -- in exchange for "B", non-voting shares.
Converting those extra shares would raise the government's stake in RBS to over 80 per cent.
RBS's mooted cash call -- which is dwarfed by its own and HSBC's record share issues but is still sizeable at 4 billion pounds -- could limit that stake increase to just over 70 per cent. But analysts questioned the use of the move.
Lloyds last week confirmed after weeks of speculation that it may scale back or cancel its participation in the APS as a healthier economy improves the outlook for bad debts.
But RBS is not understood to be considering a full-scale exit. JP Morgan estimated in a note that RBS would need to raise up to £28.5 billion pounds to sidestep the APS.
Ultimately, shareholders said, it would come down to the final terms of any capital increase.
Reuters