The list of banks rescuing and recapitalising themselves shows no sign of stopping.
Last week we saw $US7 billion deals for US banks like Washington Mutual, Wachovia Corp and JP Morgan. This week we saw Ohio bank, National City flog up to $US7 billion (perhaps a bit more) of new shares (and severely dilute existing shareholders). Citigroup sold $US6 billion in so-called hybrid stock that qualify as debt and equity.
This morning Merrill Lynch revealed it was trying to raise $US7.3 billion in new money via issues of bonds and preferred shares. It wrote off $US6.1 billion last week in dud loans and deals last week.
The Bank of England and the British Government revealed plans to do $US100 billion worth of deals with British banks to try and keep them lending, especially to the politically-sensitive property market.
And overnight the US Fed revealed that it has so far auctioned $US360 billion in new funds for the US banking sector since last December.
And now Royal Bank Of Scotland has confirmed that it is also going down to dilution route by revealing plans to raise almost $US24 billion in new capital from shareholders. It also revealed plans to wrote down almost $US12 billion worth non performing assets.
It is reportedly in the process of selling assets, such as Angel Trains that could raise another $US8 billion.
The bank it would look to sell the full or partial sale of its insurance arm, which includes the businesses, Churchill and Direct Line.These could raise another $Us8 to $US10 billion.
RBS said it hopes to boost its Tier 1 capital, which is the core measure of a bank’s financial strength, to 6 per cent.
At present, following its joint multi-billion takeover of Holland’s ABN Amro last year, RBS’ Tier 1 capital is currently 4 per cent – one of the lowest in the banking sector.
In fact the series of deals and moves by RBS represents the biggest recapitalisiation of a British company ever seen.
It plans to issue 11 new shares for every 18 existing shares at 200 pence a share. That’s a huge 46.3% discount the closing share price Monday of 3.72.5 pounds.
RBS has been caught by the impact of the credit crunch and subprime crisis in the US on its investments and on the cost of the over-priced purchase of ABN Amro Holding last year with partners Banco Santander of Spain and Fortis of Belgium. Fortis has already been forced to raise billions of dollars and sell assets to pay for its share and repair its depleted capital ratios.
The three banks paid around $US114 billion for ABN, mostly in cash last year and that has hurt their capital ratios (The Spanish bank has also had to deal with the collapse of the Spanish property and housing boom, which has exposed it to losses.
But RBS is the high profile banking disaster in Britain: it was in February that management and the board denied there was any problem with assets and its capital and lifted dividend.
It has cut jobs and sold assets and has lost more than a third of its market value since the start of the credit turmoil in August.
In its statement, RBS said it has identified for "possible whole or partial disposal RBS Insurance and other smaller assets which are not central to the powerful UK and international banking franchises that RBS has built".
