Government takes majority stake in RBS

28 November 2008

The government has taken a 58% stake in the Royal Bank of Scotland after shareholders rejected the banking group’s £15 billion share offer.

In a statement this morning, RBS said that only 0.24% of new shares offered to investors were taken up, leaving the government – and the taxpayer – to pick up the remaining 22.9 billion shares and take control of 57.9% of the bank.

Shareholders had little incentive to buy the new shares in RBS as they were trading at 55.10p on the run up to the cash call – well below the offer price of 65.5p. The bank will now receive a total of £20 billion from the taxpayer, made up of £15 billion in ordinary shares and £5 billion in preference shares.

"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," Stephen Hester, the new chief executive of RBS said.

The sale of shares in RBS is part of the government's £37 billion bailout of banks who have been hit hard by the credit crunch.

Back in April RBS announced a £12 billion rights issue to bolster its balance sheet, the largest the UK has ever seen. It recently announced that it had made losses totalling £206 million from sub-prime debts, on top of the £5.9 billion lost in the first six months of the year.

The shares will be in the hands of a newly-created company, UK Financial Investments (UKFI), which is owned by the Treasury. However the government has described UKFIL as being at run at arms length from it.

Both Lloyds TSB and HBOS will ask shareholders to buy £13 billion of new shares taxpayer in the coming weeks.

However, with following Bradford & Bingley's nationalisation - despite a rights issue - shareholders in these banks may fear losing their money.

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