Stephen Hester, the new chief executive of Royal Bank of Scotland, admitted he did not know if investors would take up any of the emergency share offer it is making.
Stephen Hester, the new chief executive of Royal Bank of Scotland, admitted he did not know if investors would take up any of the emergency share offer it is making, although proposals for the issue were backed by 99% of voters yesterday.
Hester said he had been getting a "good hearing" in an intensive round of meetings with investors but could not say if any would be prepared to risk buying shares at the 65.5p price at which they are on offer.
"My view is that shareholders are going to be economically rational and it will depend heavily on where the share price is when they have to make a decision," Hester told The Herald following a general meeting to approve the issue.
The banking and property veteran noted that the £15bn issue of ordinary shares was taking place against the backdrop of great disillusionment with banks, including Royal Bank.
With share prices swinging wildly recently amid uncertainty about the global economy, investors could struggle to value banks.
Hester's comments suggest Royal Bank's directors are ready for a rebuff when the deadline for the offer passes on November 25.
With shares closing at 46p yesterday, well adrift of the offer price, it is possible that none will be sold to private investors or institutions.
As the government has agreed to fully underwrite the issue this would mean it would take all the ordinary shares on offer. This would be in addition to paying £5bn for preference shares.
The government would then be left with a 58% holding in Royal Bank to add to its list of controlling stakes in banks. This already includes Northern Rock.
Hester's comments came after shareholders expressed fury about the government's rescue package, which one described as "highway robbery".
Royal will have to pay 12% interest on the preference shares. It will not be able to pay any ordinary dividends until the preference shares have been redeemed.
However, during a meeting at which outgoing chief executive Sir Fred Goodwin finally admitted he was sorry about the state the bank had been reduced to, it was clear that Royal Bank had no choice but to accept funding on the government's terms.
Sir Tom McKillop, who will stand down as chairman in April, admitted that amid the meltdown in financial markets this year the bank had been reduced to a state in which it could not function fully without help.
"This was a package which had to be considered as a whole but the board judged it was essential to the group's ability to do business."
Apparently referring to Barclays, he noted another bank had agreed to pay around 14% as the price of not taking the government funding, which was announced in October.
This would not be available on the same terms in the current market.
McKillop said the government had taken "decisive action to support the banking sector" with a well-considered package of measures to address this.
After coming under fierce criticism for the perceived failing of Royal Bank's board to manage the risks it faced adequately, McKillop re- iterated the contents of a carefully scripted speech.
In this he said Royal Bank had taken sensible steps to try to boost its balance sheet with a £12bn rights issues in June. It then found itself caught up in "a very severe further deterioration in financial market conditions" following the collapse of Lehman Brothers in September.
"Let me be clear the acquisition of ABN Amro may now be seen with hindsight as having increased our exposure to the emerging crisis but it did not cause it."
While sorry for the state of affairs, he said: "Every decision we have made was considered very carefully and judged against the evidence we had at the time we made it. At all times we have sought to ensure that the best interests of shareholders have been protected."
This comment provoked sceptical-sounding murmurs in sections of the Church of Scotland assembly hall in Edinburgh, in which around 400 shareholders gathered.
McKillop responded: "You may laugh but I can assure you that that's the way the board has conducted itself."
Pressed by a former employee to say sorry for developments that had left many shareholders very unhappy, Sir Fred Goodwin said: "I don't want there to be any doubt in anyone's minds that I am extremely sorry that this has come about. I am extremely sorry to be leaving in these difficult times."
Goodwin also said that the acquisition of ABM Amro had compounded the challenges facing Royal Bank but had not caused them.
Asked what he would do next, he told reporters: "Have a rest. I have not given it any thought."
Speaking after the meeting, Hester said Royal Bank had very strong businesses but made clear the extent of the challenges it faced.
He said financial markets finally appeared to be starting to stabilise but that the world was set for painful recession.
He has launched a strategic review to position Royal Bank to respond to market changes. "My expectation is there will be job losses simply because economic activity levels will be lower," said Hester.
It is too early to forecast what this will mean for Scotland.
Hester, a non-executive director of Royal since October 1, takes up the chief executive post today. Goodwin will act as a consultant to Royal Bank.
McKillop said Royal Bank had no connection with efforts by its former chief executive and chairman Sir George Mathewson to block the government-backed takeover of HBOS by Lloyds TSB.
Some 99.28% of votes cast supported the share issue through a placing and open offer.
