Britannia Radio

Government to own majority of RBS

The government is to own 57.9% of Royal Bank of Scotland after
shareholders bought only a tiny proportion of the new shares being
offered by the bank.

The small take-up had been expected as the offer price of 65.5p was
about 10p higher than the price at which the shares were trading.

The share issue by RBS, which owns NatWest, was part of the government's
plan to recapitalise banks.

The government will pay about £15bn for the majority stake in the bank.

It will also buy £5bn of preference shares in the bank.

Existing shareholders agreed to buy almost 56 million shares, which
represents just 0.24% of the new shares on offer, at a cost of £36.7m,
making an immediate paper loss of £5.6m.

The gap between the offer price and the current share price also means
that taxpayers have made an immediate paper loss of £2.3bn based on
Thursday's closing share price.

Strings attached

RBS shareholders voted to take the government money at a meeting last
week.

There will be strings attached, with the bank losing freedom in areas
such as executive pay and dividend policy.

RBS also had to agree to return to "normal" lending practices, and last
week it announced that it would guarantee overdraft rates and contracts
for its business customers for at least a year.

The government's shares will be held by a company called UK Financial
Investments Ltd, which is supposed to maximise value for taxpayers and
prevent politicians making business decisions about banks.

Its chair will be Philip Hampton, chairman of Sainsbury's and former
finance director of Lloyds TSB.

Lending problems

RBS is one of the many banks that has been hit by its exposure to debt
based on US sub-prime loans.

It has also struggled with the collapse in inter-bank lending as the
whole industry worried about which of their peers they could afford to
lend to.

Critics say that RBS paid too much to buy ABN Amro last year.

It led a consortium that paid 71bn euros ($91bn; £61bn) for the Dutch
bank in October 2007.

Story from BBC NEWS:
http://news. bbc.co.uk/ go/pr/fr/ -/1/hi/business/ 7753845.stm

Published: 2008/11/28 08:25:01 GMT