RBS okay for UK's biggest rights issue

LONDON, England (AP) -- Shareholders in Royal Bank of Scotland Group gave approval on Wednesday for the biggest stock rights issue in British corporate history -- almost $24 billion -- as another British mortgage lender announced plans of its own for a rights issue.

RBS said that a 95 percent majority voted in favor of authorizing the bank to issue £12 billion ($23.9 billion) in stock to bolster its finances after hits from its exposure to the U.S. subprime mortgage crisis and last year's costly buyout of Dutch bank ABN Amro.

The shareholders also approved the payment of a scrip dividend -- a dividend in shares -- for the first half of 2008. This second resolution was approved by a 96 percent majority.

"Our view is that the world has changed," RBS chairman Tom McKillop told investors at a meeting in Edinburgh.

"The further deterioration we have seen in credit markets this year; the examples of quite extreme stress we have seen in some of our financial counterparties; the worsening of the economic outlook -- all these factors have brought us to the conclusion that we needed to carry more capital in our business than we have chosen to do in recent years, when the economic environment was more stable," he added.

The increasing toll on lenders was underlined Wednesday by an announcement from mortgage lender Bradford & Bingley that it will ask shareholders for £300 million ($582.3 million) in a bid to bolster its balance sheet.

Bradford & Bingley, which just a month ago said it had no plans to ask investors for more cash, became the third bank to seek extra funds after HBOS, the parent company of mortgage lender Halifax, announced plans for a £4 billion ($7.95 billion) rights issue.

Worldwide, Citigroup, UBS, Merrill Lynch and JPMorgan Chase have all turned to investors for more capital.

The RBS share issue, as well as a planned disposal of its insurance business, is an attempt to rebuild the ratio of equity held against risky assets, or the core Tier 1 ratio.

RBS's ratio has been hovering near the 4 percent regulatory minimum, following the €70.5 billion acquisition of ABN Amro and because of predicted write-downs on credit securities totaling some £8.5 billion pounds in 2007 and 2008.

The bank has now raised its target range for both Tier 1 and Core Tier 1 capital. Core Tier 1 capital excludes certain instruments such as preference shares.

"We have raised our target range for Tier 1 capital to between 7.5 percent and 8.5 percent," McKillop said.

"We also believe that in this less certain business climate it is appropriate to attach greater weight to the narrower measure of Core Tier 1 capital, and have therefore set a new target for this ratio to exceed 6 percent," he added.

Analysts expect Barclays, which releases its first quarter trading statement on Thursday, to announce a capital-boosting initiative next, but more likely through a private placement of shares to sovereign wealth funds or other investors.

RBS shares closed 5.5 percent lower at 319.25 pence ($6.21), while Bradford & Bingley shares dropped 9.3 percent to 144 pence ($2.80).

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