The UK Government has assumed majority control of Royal Bank of Scotland, with a 57.9% stake, after investors took up just 0.24% of the £15bn of shares offered.
The UK Government has assumed majority control of Royal Bank of Scotland, with a 57.9% stake, after investors took up just 0.24% of the £15bn of shares offered to them in the institution's latest blockbuster capital-raising.
Stephen Hester, who succeeded Sir Fred Goodwin as chief executive of Edinburgh-headquartered Royal Bank of Scotland on November 21, expressed "regret" that existing shareholders did not subscribe for their entitlement to new shares but said he understood.
It had looked like a foregone conclusion that the government would end up within a hairsbreadth of the maximum possible stake it could amass in its capacity as underwriter of this giant capital-raising, with Royal shares mired significantly below the 65.5p-a-share subscription price in the run-up to the offer's close on Tuesday.
This indeed turned out to be the case when the results of the placing and open offer were announced yesterday morning.
Royal shares closed at 55.3p last night, up 0.3p on the session, leaving the government nursing a paper loss of about £2.3bn on its stake.
Hester has signalled confidence to The Herald that the government stake can in the longer term be unwound in a way which does not involve Royal being taken over. Such an outcome would be in stark contrast to the government's sale of its 35% stake in British Energy - which proved the catalyst for a takeover of this nuclear generator by EDF (Electricite de France).
Former Royal Bank of Scotland chairman Sir George Mathewson also told The Herald about a week ago that he believed Royal could stay independent when the government stake was eventually unwound.
Royal, which had already raised £12bn in a rights issue during the summer, told the stock market yesterday: "Royal announces that, as at 11am on November 25, 2008, being the latest date for receipt of valid subscriptions, it had received valid acceptances in respect of 55,977,458 new RBS Ordinary shares, representing approximately 0.24% of the total number of new RBS Ordinary shares offered to shareholders pursuant to the 18-for-13 placing and open offer announced by RBS on October 13, 2008. In accordance with the arrangements set out in Part III of the placing and open offer prospectus dated November 4, 2008, at closing HM Treasury will take up the remaining 22,853,798,818 new RBS Ordinary shares, for which valid acceptances were not received. As a result, HM Treasury will own approximately 57.9% of the enlarged issued Ordinary share capital of RBS."
Hester expressed his gratitude yesterday to the government, which stepped in with the promise of recapitalisation support on October 8 after the global financial crisis escalated dramatically with the September 15 collapse of US investment bank Lehman Brothers.
The Royal chief executive said yesterday: "We welcome completion of the capital-raising process that has strengthened RBS considerably. We are grateful to the government for its underwriting and broader financial support to liquidity and funding markets. We regret that existing shareholders did not take up their pre-emptive rights but understand that market sentiment towards the banking sector made this uneconomic in the short term."
Hester added: "We must put the past behind us and move forward with a clear focus on what we need to do next. We will focus on rebuilding RBS on its powerful customer franchises globally and, in time, deliver the economic returns that all our shareholders expect and deserve.
"Our mission is to serve the interests of all our shareholders, large and small. We will succeed only by serving our customers well.
"This business reality is one we take seriously. There remain substantial uncertainties and challenges outside our control but for our part the job is underway."
The government, as well as taking a 57.9% stake in Royal's Ordinary share capital, is also taking £5bn of new Preference shares issued by the bank.
On November 4, Royal announced additional credit crisis-related write-downs of £206m for the third quarter, on top of £5.9bn unveiled for the first half.
Although the additional £206m was not as bad as the City had feared, the bank flagged the danger of further hits.
The government is also underwriting a massive capital-raising exercise which will underpin Lloyds TSB's rescue takeover of Bank of Scotland and Halifax parent HBOS.
The government looks, on the basis of the current share prices, to be on track to take the maximum possible 43.5% of a combined Lloyds TSB-HBOS, whose component parts are issuing a total £13bn of Ordinary stock and £4bn of Preference shares.
The government is prepared to pay 113.6p each for HBOS shares in its role as underwriter of this bank's issue of £8.5bn of shares.
HBOS shares closed last night at just 91.3p.
And the government is prepared to pay 173.3p per Lloyds TSB share as underwriter of this bank's issue of £4.5bn of shares.
Lloyds TSB closed last night at 168p.
The government has set up a company, UK Financial Investments, to manage its shareholdings in Royal and the combined Lloyds TSB-HBOS.
