The Royal Bank of Scotland Group (RBS) has just come to the market for more cash and the offer was only taken up by a small percentage of shareholders.

The shares in RBS have been trading around the 54-55p mark, but the share issue was at 65.5p, so it is no wonder the take up was under 1% of the total.

The small take-up had been expected as the offer price of 65.5p was about 10p higher than the price at which the shares were trading. The Royal Bank of Scotland, which owns Natwest Bank, needed to raise £20 billion and now that the offer has all but failed, the government will need to bail the bank out and will end up owing just under 58% of the shares.

To think that back in 2007 shares in RBS were trading at over £7 per share and as a result of being affected badly by the sub-prime loans, the bank has had to be bailed out!

Shares in Royal Bank of Scotland, Lloyds TSB and HBOS have fallen sharply despite the UK government’s £37bn rescue package for the three banks.

The plan is meant to secure the banks’ futures, but it also means profits will have to be shared with the government.

In addition, the injection of taxpayers’ money will mean that the banks will not be paying dividends to their shareholders.

HBOS closed down 27.5%, Lloyds TSB was 14.5% lower and RBS down 8.4%.

BBC business editor Robert Peston said the banks faced “absolute humiliation”.

It would “count as perhaps the most extraordinary day in British banking history”, he added.

Paul Kavanagh, at the brokers Killik & Co said: “It’s good news for the banking system, but it’s not necessarily good news for share prices of the banks”.

“One thing the banks have had to concede is to stop paying dividends. Many bank shareholders are the big income funds and they’ve been selling them today.”

‘Extraordinary times’

RBS will receive £20bn of taxpayers’ money with a further £17bn to be put into HBOS and Lloyds TSB. Barclays intends to raise £6.5bn without government help.

“It’s immensely regretful we’re coming to shareholders to raise funds again, it’s something we feel bad about” Sir Tom McKillop RBS chairman

Taxpayers will own about 60% of RBS and 40% of the merged Lloyds TSB and HBOS.

The government will also get a say in how the three banks are run, and executives will see their cash bonuses limited or forbidden.

Chancellor Alistair Darling told MPs that the rescue package contained: “essential steps in helping the people and businesses of this country and supporting the economy as a whole”.

Prime Minister Gordon Brown said the bail-out was: “unprecedented but essential for all of us”, and would thaw frozen money markets.

“In extraordinary times, with financial markets ceasing to work, the government cannot just leave people on their own to be buffeted about,” he added.

‘Surgical approach’

Mr Brown insisted the investments were assets and, “not just money being pumped in”, adding the government intended to sell the investments at some point.

The measures needed to be accompanied by international banking system reforms, he added.

“We must now put in place new structures and new rules for the future. This cannot simply be a short-term rescue to paper over the cracks. Only a surgical approach that gets to the root of the problem will now work to ensure the problems do not return.”

The Treasury cash forms part of the government rescue plan announced last week.

Management shake-up

As part of the banks’ announcements:

– RBS said chief executive Fred Goodwin was quitting with immediate effect – without a severance pay-off. He will be replaced by British Land boss Stephen Hester. RBS chairman Tom McKillop is to retire.
– Lloyds and HBOS said they had renegotiated their merger, reducing the number of Lloyds TSB shares that HBOS shareholders will receive.
– HBOS chief executive Andy Hornby and chairman Lord Dennis Stevenson said they would stand down from their posts after the merger with Lloyds TSB was complete. Neither will take any extra payments when they leave.
– RBS and Lloyds TSB/HBOS will return mortgage and small-business lending to 2007 levels, which is much more than they are currently lending.

“It’s not wrong to call it nationalisation but it’s very different from Northern Rock. Shareholders will continue to own a big chunk of the banks” Robert Peston BBC Business Editor

Other developments included:

– Major central banks saying they would offer financial institutions an unlimited amount of short-term dollar loans to help stem the crisis.
- London’s FTSE 100 index rising by about 5% as investors reacted to the news, though banking shares were mixed.
– As a condition of the deal, the government has insisted that senior directors should get no cash bonuses this year, with future bonuses to be paid in the form of shares – a move aimed at encouraging management to take a more long-term approach.

Dividend cancelled

The government will buy £5bn of preference shares in RBS and another £15bn of ordinary shares if, as many expect, the bank is unable to find willing private investors.

BANKS AND THEIR BAIL-OUTS
RBS – £20bn (government takes 60% stake)
Lloyds TSB/HBOS – £17bn* (government takes 40% stake)
*dependent on merger being completed

Check UK bank shares

“It’s immensely regretful we’re coming to shareholders to raise funds again, it’s something we feel bad about,” said RBS chairman Sir Tom McKillop. “We cannot help but feel contrition.”

HBOS will raise £11.5bn from taxpayers, made up of £8.5bn in ordinary shares and £3bn in preference shares, while Lloyds TSB is to get £5.5bn.

The money is conditional on the merger of the banks going through.

Lloyds TSB and HBOS said the deal was still on, but that the terms had been renegotiated.

A £12.2bn deal was agreed last month, but the value of HBOS shares has since plunged and the extent of the recapitalisation has highlighted its weakness.

Under the revised deal, HBOS shareholders will get 0.605 Lloyds TSB shares for every HBOS share they hold. Under the original deal they would have received 0.83 Lloyds TSB shares.

‘No Rock’

Barclays has said it is to raise £6.5bn of new capital. The bank is to raise the money from private investors, rather than going to the government.

Barclays also said it would scrap its final dividend payout for 2008, saving it £2bn.

Our business editor said it was not wrong to describe the part-ownership of RBS, Lloyds TSB and HBOS as nationalisation, but the situation was very different from Northern Rock and Bradford and Bingley, which had seen private investors lose their holding.

“Shareholders will continue to own a big chunk of the banks,” he said.

News reported by The BBC

HSBC has blamed turmoil in the financial markets after withdrawing its $6bn (£3.3bn) offer to buy a majority stake in Korea Exchange Bank (KEB).

The stake is owned by Texas-based private equity firm Lone Star.

A year after agreeing the deal, HSBC said its plans to buy the stake were no longer in the best interests of its shareholders.

There has been speculation HSBC will instead use the money to buy one of the western banks hit by the credit crunch.

It has already been linked with both Washington Mutual and Royal Bank of Scotland.

The deal to buy KEB has been complicated by legal disputes surrounding Lone Star’s investment activities in South Korea.

Without the necessary approval from South Korean regulators, HSBC said it was free to withdraw its offer.

“In the light of developments around the world, not least changes in asset values in world markets, we do not believe it would be in the best interests of shareholders to continue to pursue this acquisition on the terms negotiated last year,” said HSBC Asia chief executive Sandy Flockhart.

News reported by The BBC

The FTSE 100 share index has closed more than 400 points higher, its biggest one-day rise, after the US confirmed a financial bail-out plan.

It ended the day 8.8% higher at 5311.3 points. But after a turbulent week on the markets, the FTSE was 105 points lower than its value on Monday.

Banking shares were amongst the biggest gainers, with Royal Bank of Scotland up 32% and Barclays and HBOS both up 29%.

They were helped by a ban on short-selling of financial shares.

“The breathtaking rises in the price of bank shares this morning are symptomatic of a stock market that is bereft of reason and is being driven almost purely by fear and momentum.” BBC Business Editor Robert Peston

What is short-selling?
See banking sector shares

The restriction was announced late on Thursday by the Financial Services Authority (FSA) which banned short-selling in a number of financial shares.

Short-selling involves traders profiting from falling share prices. The technique works when investors borrow shares from another investor, and then sell them hoping the price will fall.

The aim is then to buy back the asset at a lower price and return it to its owner, pocketing the difference.

Previously anyone could short a position in a company’s shares, but typically hedge funds were the main players.

The temporary ban on short-selling applies to 29 financial stocks.

It was introduced by the FSA due to concerns that short-selling had been a contributory factor in the sharp falls in HBOS shares before it was rescued by Lloyds TSB.

The ban, which came into force at midnight on Thursday, will last until 16 January but the FSA will review its operation in 30 days.

Short-selling in layman’s terms
“While we still regard short-selling as a legitimate investment technique in normal market conditions, the current extreme circumstances have given rise to disorderly markets,” said FSA chief executive Hector Sants.

Paul Edmondson of City lawyers CMS Cameron McKenna said he wasn’t sure if the ban on short-selling had been “fully thought through”.

“The move is obviously intended to stop further speculative attacks on bank share prices,” he said.

“Politically that must make sense – a perception of stability in the markets has to be a good thing and speculators’ profits are not a political priority.

“Unfortunately, the fact is that short sellers provide a lot of the liquidity in the market which will now disappear.”

The UK short-selling ban applies to shares in the following companies – Admiral, Alliance & Leicester, Alliance Trust, Arbuthnot, Aviva, Barclays, Bradford & Bingley, Brit Insurance, Chesnara, European Islamic Investment Bank, Friends Provident, HBOS, Highway Insurance, HSBC, Islamic Bank of Britain, Just Retirement Holdings, Legal & General, Lloyds TSB, London Scottish, Novae, Old Mutual, Prudential, Resolution, Royal Bank of Scotland Group, RSA Insurance, St James’s Place, Standard Chartered, Standard Life, and Tawa.

News reported by The BBC

Bradford & Bingley (B&B) has said that more than a quarter of the shares offered under its £400m rights issue have been bought by shareholders.

The bank said that 27.8% of its new shares, which were on offer at 55p each, had been taken up by investors.

Other UK banks, including HBOS, Royal Bank of Scotland and Barclays, have sought to raise extra cash after being hit by the credit crunch.

Separately, B&B announced Richard Pym as its new chief executive.

Lacklustre performance

Despite B&B’s rights issue proving more successful than some recent rights issues by other banks, almost £300m of its new shares will be left with underwriters.

The underwriters – Citi and UBS – will now try to place the remaining shares by Friday.

The two investment banks are being supported by four major shareholders and six banks – HSBC, Lloyds TSB, HBOS, Barclays, Abbey and Royal Bank of Scotland. This could mean that some of the UK’s main High Street banks will end up owning a chunk of B&B.

The news comes as B&B announced it had appointed Richard Pym its new chief executive with immediate effect.

Mr Pym was a former group chief executive at Alliance & Leicester and retired in July 2007.

He is currently an independent non-executive director of asset management group Old Mutual and a non-executive chairman of car parts retailer Halfords.

Despite Mr Pym’s credentials, he is likely to face a tough ride at B&B, observers say.

“[Mr] Pym is a safe pair of hands, in our view, to try to shepherd B&B through the coming asset quality problems we feel it will suffer. However, we also feel he can do little to avert said problems,” said Collins Stewart analyst Alex Potter.

Troubled rights-issue

B&B’s rights issue has been restructured twice. The bank first announced an attempt to sell shares at 82p in May.

Then, as trading took a turn for the worse, B&B announced it had decided to sell a 23% stake in the firm to Texas Pacific, but the private equity firm later backed out.

WHAT IS A RIGHTS ISSUE?
Companies issue extra shares to raise money
They are offered to existing shareholders, usually at a discount to the current share price
Shares are offered in proportion to existing holdings, so if you own 10% of the old shares you are offered 10% of the new ones

Earlier this year, the Royal Bank of Scotland raised £12bn from its shareholders with a strong take-up in its rights issue of around 95%.

Barclays secured £4.5bn in new funding from a range of foreign investors, but only 19% of its new shares were taken up by existing investors.

Last month, HBOS said that only 8% of the new shares on offer were taken up in its £4bn rights issue.

In its statement, B&B added that there had been “no material change” in either current trading or the outlook for the company.

It is scheduled to release its six month results to 30 June on 29 August.

News reported by The BBC

A £400m rights issue at Bradford & Bingley (B&B) has closed, with analysts expecting that some of the deal’s underwriters will end up with shares.

Shares in B&B were trading at 55.25p when the deadline for the cash call finished on Friday – just above the 55p offer price for existing investors.

The take-up is forecast to be modest – though higher than the 8% seen last month in a rights issue by HBOS.

B&B, a buy-to-let loans specialist, has been hit hard by the credit crunch.

It is not expected to reveal how many shareholders took up the offer to buy extra shares until Monday.

The rights issue was underwritten by banks including Citi and UBS, along with HSBC, Lloyds TSB, HBOS, Barclays, Abbey and the Royal Bank of Scotland.

WHAT IS A RIGHTS ISSUE?
Companies issue extra shares to raise money
They are offered to existing shareholders, usually at a discount to the current share price
Shares are offered in proportion to existing holdings, so if you own 10% of the old shares you are offered 10% of the new ones

Rival cash calls

B&B’s rights issue has been restructured twice. The bank first announced an attempt to sell shares at 82p in May. Then, as trading took a turn for the worse, B&B announced it had decided to sell a 23% stake in the firm to Texas Pacific, but the private equity firm later backed out.

Earlier this year the Royal Bank of Scotland raised £12bn from its shareholders with a strong take-up in its rights issue.

Meanwhile Barclays has secured £4.5bn in new funding from a range of foreign investors.

Barclays announced last month that 19% of its new shares had been taken up by existing investors.

News reported by The BBC

Shares in some of the UK’s leading banks have risen strongly on the back of takeover rumours and hopes of a recovery in the financial sector.

HBOS, the UK’s biggest mortgage lender, jumped 16.9% on talk that it could be a takeover target for Spanish bank BBVA.

Both HBOS and BBVA declined to comment on the rumours.

Among other UK banks, shares in Royal Bank of Scotland were up 11.2%, Barclays added 11.8% and Lloyds TSB shares were trading 8.3% higher.

Raising funds

On Monday, HBOS had revealed that its £4bn fund-raising rights issue had been snubbed by investors.

Initially only 8.3% of the new shares offered were taken up, although a further 30% were taken up on Monday, leaving the rest with the issue’s underwriters.

HBOS is not the only UK bank to have sought extra funds to strengthen its balance sheet as the fallout from the credit crunch continues.

The Royal Bank of Scotland has raised £12bn while Barclays has secured £4.5bn in new funding from a range of foreign investors.

Spain’s BBVA is currently focused on the Spanish and Latin American markets. It employs 95,000 employees, has 35 million customers and operates in 32 countries.

Last week, Spanish rival Santander agreed to buy UK bank Alliance & Leicester for £1.2bn.

News reported by The BBC

Investors based in Qatar own 8% of Barclays after the bank’s existing shareholders shunned its £4.5bn fundraising.

The Qataris were sitting last night on a £200m profit after bank shares staged a sudden rally after a week in which shares were battered by fears over the state of the US banking sector.

However, the rally came too late to help HBOS, which completed its £4bn rights issue yesterday. The bank will reveal on Monday how many of its shareholders supported its cash call at 275p a share. The City is braced for a low uptake, suggesting that the investment banks Morgan Stanley and Dresdner Kleinwort and the sub-underwriters they lined up could be left holding many of the £4bn of new shares.

Just 19% of Barclays’ shareholders participated in its fundraising. In contrast, the record-breaking £12bn rights issue by Royal Bank of Scotland was supported by 97% of its existing shareholders. HBOS is not expected to achieve anything near this level of success, particularly as 25% of its investor base are retail investors who traditionally sit on the sidelines during fundraising exercises.

Barclays avoided a rights issue. Instead it embarked upon a £4bn share-placing backed by four major investment houses – the Qatar Investment Authority and the Qatar-based fund Challenger, China Development Bank and Singapore’s sovereign wealth fund Temasek – and a £500m investment by the Japanese bank Sumitomo Mitsui.

Barclays’ existing shareholders were allowed to “claw back” stakes from the four investment houses but had little incentive to do so because its shares often traded below the 282p at which the placing was priced.

However, by the close last night, Barclays shares were up 10% at 320.25p and HBOS closed above its rights issue price of 275p at 282p, up 5%. At the 11am deadline for acceptances for the rights issue, HBOS shares were at 269p, below the subscription price.

Bank shares were buoyed yesterday by better than expected figures from the US bank Citigroup after a turbulent week following the bailout of the US mortgage lenders Freddie Mac and Fannie Mae. RBS, which sank to a new low of 145p this week, also jumped 10% to 197.6p – within a whisker of the 200p at which its investors were convinced to support its cash call.

Sentiment was also boosted by research from analysts at Morgan Stanley who regard 145p as the “bottom”. James Eden, banks analyst at Exane BNP Paribas, also called the bottom for RBS. “We see downside risk for every single bank apart from RBS,” said Eden.

He also admitted he was embarking upon a more pessimistic way to value banks by using the basis of a 1990s-style recession and then giving this scenario a 40% probability. To explain his change in methodology, he said: “As this author sits here today, watching his house plunge in value while the cost of his weekly food shop soars, booking advance supersaver train tickets to visit his grandparents in Cambridge because petrol is too expensive to travel by car, and with a greater sense of job insecurity than he would like, we are forced to admit that our base-case scenario is probably also our best case”.

Barclays shareholder register will undergo a radical change as a result of its fundraising. The QIA is expected to announce next week that it has a 6% share in the bank, while Challenger is expected to have a near-2% investment, taking the total Qatari investor base to 8%. The China Development Bank is maintaining its stake at 3%, while Temasek is raising its stake from 2% to about 3%. Sumitomo Mitsui will own 2.1%, while a variety of hedge funds such as Och-Ziff, Lansdowne and GLG will also be taking up Barclays shares.

News reported by The Guardian

Allstate, the US insurance giant, has brought in investment bank JPMorgan, alongside advisers Lehman Brothers, to arrange the financing for its estimated £7bn tilt at Royal Bank of Scotland’s insurance arm (RBSi).

Allstate is thought to be the front-runner in an auction for the unit, with Zurich pulling out of the running last week.

The interest of the remaining bidders, Germany’s Allianz and the American Travelers group, is thought to have cooled. Allianz’s sale of its Dresdner banking arm is thought to have scuppered its chances of making a serious offer.

However, sources close to the deal believe that Sir Fred Goodwin, chief executive of RBS, is increasingly likely to pull out of a sale, with indicative bids thought to be some way short of the asking price.

“This deal will only happen if Fred needs the extra cash to shore up the balance sheet further,” said a source.

The London-based corporate adviser Fenchurch, which counts Ian Chippendale, the former boss of RBS’s insurance division, among its number, is also part of the Allstate advisory team.

News reported by The Independent

Zurich Financial Services, one of the leading bidders for Royal Bank of Scotland’s insurance arm, has decided to pull out of the running.

RBS is seeking to sell its insurance business, including its Direct Line and Churchill brands, for £7bn.

The sale is part of a number of steps the bank is taking to strengthen its balance sheet amid the credit crunch.

Zurich said it had decided to withdraw from any further discussions following a review of the business.

An RBS spokesperson declined to comment.

RBS is looking to shore up its finances to cover losses inflicted by the credit crunch.

Last month, it raised £12bn after selling shares to existing shareholders in a rights issue.

It has also sold off the UK’s biggest train leasing firm, Angel Trains, for £3.6bn to a consortium.

News reported by BBC