Royal Bank of Scotland Group Plc investors took 0.2 per cent of shares offered in the UK’s biggest bank bailout, leaving the government with almost £20 billion ($31 billion) of stock and a majority stake.
Investors bought 56 million shares at 65.5 pence apiece, the Edinburgh-based bank said today in a statement. The government will buy the remaining common shares, giving it a 58 per cent stake, and also purchase £5 billion of preferred stock. Directors including Chairman Tom McKillop and former Chief Executive Officer Fred Goodwin bought stock.
RBS, Lloyds TSB Group Plc and HBOS Plc agreed to sell a combined £37 billion of stock in Prime Minister Gordon Brown’s plan to shore up capital in the British banking system. While RBS investors approved the bailout, most declined to buy shares offered at 16 per cent above Thursday’s closing price on the London Stock Exchange.
“We regret that existing shareholders didn’t take up their pre-emptive rights but understand that market sentiment toward the banking sector made this uneconomic in the short term,” said CEO Stephen Hester in an e-mailed statement.
The shares fell 0.7 pence, or 1.3 per cent, to 54.3 pence as of 8:56 am, valuing the company at £8.9 billion.
RBS, which was Britain’s second-biggest bank before it lost 85 per cent of market value this year, may post its first annual loss in 40 years as bad loans increase, the company said earlier this month.
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The bank has reported more than £7 billion of credit losses this year and probably will take more writedowns in the fourth quarter, Hester, 47, said earlier this month.
‘More Capital’ Needed: “It’s no surprise given that the shares traded consistently below the offer price for a couple of weeks before the closing date of applications,” said Simon Willis, an analyst at NCB Stockbrokers Ltd. who has an “accumulate” rating on RBS.
Bank of England Governor Mervyn King said this week that British banks may need more capital as the country heads for its worst recession in 17 years. RBS, which is taking almost half the U.K. bailout funds, will need to top up the state aid with cash from its businesses to manage the economic downturn, said Simon Maughan, a London-based analyst at MF Global Securities Ltd. who has a “buy” rating on the stock.
“Whether RBS has enough capital to survive” is the main concern for investors, Maughan said on Nov. 19.
ABN Amro Purchase
Hester’s predecessor Goodwin used leveraged loans, securities trading and $90 billion of acquisitions to turn RBS into one of the biggest banks in the world during eight years as CEO. His 14.3 billion-euro ($18.5 billion) acquisition of ABN Amro Holding NV last year, part of the world’s biggest banking takeover, triggered a third of the bank’s first-half writedowns.
RBS shares traded below the offering price set by the government on Oct. 13 for almost three weeks before the sale closed on Nov. 25, leaving investors no incentive to take up their rights. The bailout restricts the banks from paying a dividend until the preferred stock is repaid.
The offering was RBS’s second share sale this year. The bank raised 12.3 billion pounds by selling stock to investors in June at 200 pence apiece, more than three times yesterday’s market price.
Hester, who was a non-executive director of RBS before he was appointed CEO on Nov. 21, wasn’t eligible to buy stock. He was granted 10.4 million shares when he took over from Goodwin, most of which will vest from March 2009. Hester sold 237,440 shares immediately to meet a tax liability, the bank said this week.
HBOS and Lloyds TSB also trade below the price at which they plan to sell shares. That means the government could end up owning almost 44 percent of the merged company. HBOS is selling 11.5 billion pounds of shares backed by the government. Lloyds TSB, which may take as much as 5.5 billion pounds of state funds, got shareholder backing for its stock sale on Nov. 19.