RBS shareholders to vote on £20bn bail-out

Shareholders in Royal Bank of Scotland will today vote on a £20bn (€24bn) bail-out plan which could put nearly 60% of the company in public hands.

Royal Bank of Scotland (RBS) – one of the worst hit by the banking turmoil - has called a general meeting in Edinburgh to approve the rescue.

The bank is bolstering its finances by offering £15bn (€18bn) in new ordinary shares, with the British government promising to buy up any that remain.

But because RBS’s shares are trading well below the 65.5p offer price, investors are likely to snub them.

This leaves the taxpayer – currently sitting on a paper loss of around £5bn (€6bn) on the new shares – with a potential 58% stake.

On top of the £15bn (€17.8bn) share issue, RBS shareholders will vote to approve issuing £5bn (€5.9bn) in preference shares to the Government, which the bank will buy back over time.

RBS cannot pay any dividends to shareholders on its ordinary shares while any of the preference shares are outstanding.

The drastic fundraising moves come on top of a £12bn (€14.3bn) rights issue by RBS earlier this year before the financial crisis worsened.

Last year’s acquisition of Dutch bank ABN Amro at the top of the market had already stretched RBS, and the subsequent turmoil and bail-out cost chief executive Fred Goodwin his job.

The NatWest parent wrote off £5.9bn (€7bn) in credit crunch losses in the first half of this year and is likely to make a full-year loss for the first time in its history as a public company during 2008.

More than 50% of RBS investors have to approve the fundraising exercise for it to go ahead.

Lloyds TSB shareholders yesterday voted 95.98% in favour of the proposed takeover of ailing rival HBOS at a special meeting in Glasgow.

They also backed plans to raise a total of £5.5bn (€6.6bn) through the issue of new shares and special preference shares to strengthen Lloyds’ balance sheet.