RBS one step closer to nationalisation

19 January 2009
Royal Bank of Scotland has moved a step closer to nationalisation after the government increased its stake in the bank from 58% to 70%.

The move is designed to support RBS and maintain its lending levels. Rather than pump new money into the bank, the government has instead agreed to convert its existing preference shares into ordinary shares. This means RBS will no longer have to pay interest on the government's stake.

In return, RBS is expected to increase its lending to homeowners and businesses by £6 billion over the next 12 months. The move comes as part of the Treasury's latest banking bailout, which it hopes will enable other banks to also increase the amount they lend.

The move comes after RBS warned it expects losses from bad debts and write-downs to hit £28 billion when it publishes its financial results on 26 February. Challenging credit and market conditions in the last quarter of 2008 are likely to up the financial damage by a further £8 billion, the group added.

Stephen Hester, group chief executive at RBS, says: "The dislocation of credit markets and the global economic downturn continue to hit RBS hard, as with many other banks.

“We are making progress in recognising excess risk and dealing with it. Significant uncertainties and risks inevitably remain. In this context, the support we are receiving from government benefits all our stakeholders and enables us to provide more customer support in return.”

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