The Royal Bank of Scotland (RBS) has thrown down the gauntlet for those banks hoping to raise money from selling shares to investors at a discount to help them weather the effects of the global credit squeeze.
The bank, the first in the UK to issue shares for investors, has reported that it has already sold more than 95% of its £12 billion target.
Last month, RBS announced that it desperately needed to raise the capital, just months after chief executive Fred Goodwin said it did not need to. Not only has RBS been hit particularly hard by the ongoing credit crunch, but also by last year's £60 billion acquisition of the Dutch bank ABN Amro.
Meanwhile rival lender the HBOS group, which includes Halifax and Bank of Scotland, is also planning a £4 billion rights issue. With over two million shareholders, HBOS has the biggest non-institutional shareholder base in the UK. Bradford & Bingley also has a rights issue pending.
Philip Pearson, of Southampton-based IFA P&P invest, says that rights issues can be both good and bad news for investors. “In the medium to long-term, investors can profit as they are buying at a discount and share prices will recover.
"However, for those shareholders that need cash now I would urge them not to accept as it will provide them with a cash settlement.”
Rights issues are generally frowned upon by shareholders, because it means that their investments are diluted, the firm's earnings are spread more thinly and each share takes a smaller slice of the company's profits.
Shares in HBOS dropped 7% yesterday, while shares in Barclays and the Royal Bank of Scotland also suffered falls of 5%.