Royal Bank of Scotland, the parent of the Ulster Bank group, is set to announce Europe's biggest-ever rights issue and over $10 billion (€6.30 billion) of losses on investments this week, taking centre stage during a pivotal few days for UK banks.
As pressure grows on the world's largest lenders to shore up balance sheets battered by the credit crunch, Britain's second-biggest bank will seek to raise up to £12 billion (€15.07 billion), people familiar with the matter have said.
It is also considering selling assets, including a train leasing business and possibly its insurance arm. RBS confirmed in a brief statement today it was considering a rights issue. Details could come tomorrow, a day before its annual investor meeting in Edinburgh, its home city.
At 7.41am RBS shares were up 3.65 per cent at 398.5 pence, valuing the bank at £40 billion. The shares also rose 5 per cent on Friday when the prospect of a big rights issue raised optimism that banks were getting to grips with the credit crisis.
RBS is also expected to unveil a writedown of between £5 billion and £7 billion on tarnished assets, including those previously owned by ABN Amro, the sources said. The bank marked down its assets by £2.4 billon last year.
Fred Goodwin, chief executive for the last decade and the biggest name in Britain's banking sector, met his board yesterday. They are due to finalise the plans to shore up the balance sheet before discussing them with top shareholders today.
RBS is expected to "kitchen sink" its exposure to bad investments stemming from the US housing crisis and the credit crunch, aware that it needs to tap investors just the once.
The twin rights issue and writedown, however, will build pressure on Mr Goodwin, who left RBS's balance sheet stretched by leading last year's ambitious takeover of Dutch bank ABN.
He said earlier this year there was no need to raise capital, but a sharp deterioration in capital markets has made it difficult to rebuild capital organically.
Some shareholders have said the rights issue should cost Goodwin his job, but supporters say his proven expertise should see him stay in place at least through the current turmoil.
Once RBS acts, other British banks - following in the footsteps of their US rivals - are likely to consider moves to bolster their balance sheets, which are among the most stretched in Europe. Barclays, HBOS, Alliance & Leicester and Bradford & Bingley will keenly watch the reaction of RBS shareholders.