EDINBURGH – The Royal Bank of Scotland Group plc (LSE, NYSE: RBS), the parent of Providence-based Citizens Financial Group Inc., today announced that the British government will take a majority stake in RBS after the bank’s attempt to raise capital by issuing new shares failed to attract sufficient public interest.
RBS had sought to raise $31.2 billion in new capital through the stock sale, to meet requirements under the U.K. government’s initial equity purchase early last month. (READ MORE) The stock offer, which started last month, expired today.
As part of the plan, the government had agreed to buy shares not purchased by investors. But the offer price of 65.5 British pence per share – a 16-percent premium over the stock’s closing price yesterday in London trading – made it a tough sell to investors already wary of the banking sector.
Only 56 million shares, or 0.2 percent of the offering, were purchased by the public, RBS said. The U.K. government will pay about $22.5 billion for the remaining 22.9 billion shares, giving it a 57.9-percent stake in the company.
“We regret that existing shareholders didn’t take up their preemptive rights, but understand that market sentiment toward the banking sector made this uneconomic in the short term,” Stephen Hester, who last month replaced Sir Fred Goodwin as CEO, told Bloomberg News in an e-mailed statement.
The new government equity purchase “supports financial stability, protects ordinary savers, depositors, businesses and borrowers while safeguarding the interests of the taxpayer,” a British Treasury spokesperson told Bloomberg today.
RBS lost money in the first half and has acknowledged that it appears headed for its first annual loss in more than four decades.
When he took the helm last month, Hester declared that “there are no sacred cows” and said he would focus on the bank’s British base. (READ MORE) That spurred speculation the speculation that RBS might look to sell its U.S. operations. But Hester has said that most of the company’s U.S. units perform well and will not be sold.
RBS is now in the midst of a wide-ranging review of all of its businesses. This month, the company announced $327.1 million in third-quarter writedowns (READ MORE) and said it may cut its global banking and markets unit by 3,000 jobs, or about 15 percent. (READ MORE)
The Edinburgh-based bank has been hit particularly hard by the global downturn in part because of its exposure to subprime loans and its purchase early this year of ABN Amro bank, the latest in a string of acquisitions by RBS. (READ MORE)
Edinburgh-based Royal Bank of Scotland Group plc (LSE, NYSE: RBS) owns the Providence-based Citizens Financial Group Inc., a commercial bank holding company with about 25,000 employees at 1,600 branches in 13 states and non-branch offices in about 40 states. Additional information is available at CitizensBank.com or www.rbs.com.
