RBS stock slumps on writedown

Royal Bank of Scotland Group Plc, the United Kingdom's second-biggest lender, will sell 12 billion pounds of new shares to investors to boost capital depleted by writedowns.

RBS fell as much as 5.7 percent in London trading yesterday after saying it marked down 5.9 billion pounds of assets and will cut the 2008 dividend. Chairman Tom McKillop defended Chief Executive Officer Fred Goodwin, saying "our executive team has all the ability to steer the bank through this tricky period in financial markets".

RBS's capital cushion has shrunk after credit markdowns and its part in last year's 72 billion-euro purchase, mostly in cash, of ABN Amro Holding NV with partners Banco Santander SA and Fortis. The Edinburgh-based company said the outlook still is "inevitably clouded" by market turmoil sparked by the US subprime mortgage market meltdown.

"They have overpaid for acquisitions and have had a weak capital base, but there's nothing in this statement which confesses that they have made significant mistakes over recent years," said Simon Maughan, an analyst at MF Global Securities Ltd in London. "We would like to see disposals from the global banking and markets portfolio which got them into trouble."

RBS has lost almost half of its market value in the credit turmoil of the past year. It declined 5 percent to 354 pence at 10:20 am, valuing it at 35.5 billion pounds. The Bloomberg Europe Banks and Financial Services Index fell 1.2 percent.

'Very high price'

The world's biggest financial companies have posted $290 billion in asset writedowns and credit losses in the past year and announced plans to raise $163 billion by selling stakes.

RBS paid "a very high price" for ABN Amro, buying the investment banking and Asian units for 14.3 billion euros, McKillop said on a conference call with reporters. "We increased our exposure to wholesale markets at what has turned out to be an unfortunate time."

Moody's Investors Services said today it may downgrade the B+ financial strength rating and the Aaa senior debt and deposit ratings of Royal Bank of Scotland Plc and the Aa1 senior debt rating of the group.

The review "reflects concern about RBS' exposure to volatile capital markets, as also shown by the magnitude of writedowns on credit market exposures, against the ongoing implementation and execution risk of the ABN Amro acquisition and the heightened uncertainty with regards to the UK economy," Moody's said in a statement.

Agencies

(China Daily 04/23/2008 page17)