Royal Bank of Scotland, the UK bank, has confirmed it is seeking a rights issue. The bank is looking to raise more than £10 billion ($20 billion; €12.5 billion), as it plans to write down the value of its portfolio of complex bonds as well as leveraged loans by approximately £6 billion, according to media reports. RBS declined to comment on the reports.
When the reports began circling about the rights issue on Friday RBS shares were volatile and this trend has continued today. The UK bank’s share price initially rose to nearly £4.00 per share following the statement, but they subsequently fell back to £3.73 per share at 1039BST, down 2.36 percent.
But the share price is up by 7 percent on last week, which according to a fund management source reflects prior market expectations of write-downs of the loan portfolio at RBS and the rights issue. “Everyone in the fund management industry is valuing their loans at 85 percent and RBS were valuing the leveraged loans at 96 percent. The market knew they had to raise more capital,” the source said.
RBS’ balance sheet has been especially hit by last year’s £47 billion acquisition of ABN Amro alongside Banco Santander and Fortis, the Dutch bank. Not only was the deal agreed as the early signs that the debt markets were in disarray emerged, but it is thought that ABN Amro’s exposure to the US sub-prime markets contributed significantly to write-downs at the bank.
Last week Citi sold $12.5 billion (€7.88 billion) of its leveraged loan portfolio, at around 90 percent to face value, to a consortium of Apollo Management, TPG Capital and The Blackstone Group, according to media reports. News of this sale has been well received by the debt markets, especially as the private equity firms are thought not to have received a substantial discount to current market prices, the fund manager said.