News and Finance

Royal Bank of Scotland Group PLC said Tuesday it had suffered further losses of $11.7 billion from the U.S. subprime mortgage crisis and would ask investors for $23.9 billion in new capital to shore up its reserves.

The company said it would ask shareholders to approve a rights issue that would offer 11 new shares for every 18 existing shares at $3.98 per share.

The company joins Citigroup (C, Fortune 500), Swiss bank UBS (UBS) and other big financial institutions in being forced to write down billions in assets from the subprime crisis and turn to investors for more capital.

RBS (RBS) said it expects further writedowns on mortgage-backed securities, collateralized debt obligations and other assets of $11.8 billion before taxes, or $8.6 billion net.

RBS shares fell 3.3% to $7.17 in morning trading on the London Stock Exchange.

"Following the rights issue, RBS believes that it will be in a strong position to realize the substantial value in its U.K. and international franchises and to take advantage of the growth opportunities available to it," the company said in an announcement to the London Stock Exchange.

RBS said it also intends to dispose of its insurance business and other unidentified, smaller assets.

RBS, Britain’s second-largest bank by market capitalization, stretched its reserves last year in leading a consortium including Belgian-Dutch group Fortis and Spain’s Banco Santander in the takeover of Dutch giant ABN Amro Holding NV. Then it was hit by the freeze-up of the market in securities based on mortgages.

The bank said it had raised its targets to maintain a Tier 1 capital ratio of between 7.5% and 8.5% and a core Tier 1 capital ratio in excess of 6%.

"This is a difficult time for the financial services industry, and it has presented us with specific challenges direct payday loan cash advance. Central to these has been the question of our capital ratios, which have been the focus of much attention, both internal and external, over recent months," said RBS’ chairman, Sir Tom McKillop.

"It was the board’s declared intention to rebuild our Tier 1 capital to the middle to upper end of our historic range of 7% to 8% over a three-year period, but in light of the current market environment, this level and timing are considered no longer appropriate," McKillop said.

RBS Group’s retail operations in Britain include the Royal Bank of Scotland, Ulster Bank and Natwest.

Richard Hunter, analyst at Hargreaves Lansdown Stockbrokers, said RBS would benefit from being the first of Britain’s big banks to go to its shareholders for a capital injection.

"The depth of the discount on the shares being offered will almost certainly ensure a healthy take-up from existing investors," said Hunter.

"The share price has been hemmed down by a number of factors over recent months, not least of which have been the credit crunch fallout and the feeling that it may have paid a very full price for the ABN acquisition," Hunter said.

"Equally, the statement will raise serious questions, since the bank has only recently increased its dividend by 10% whilst insisting that it had no need to shore up its capital," Hunter said. 

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