Britain Gets Majority Stake in Royal Bank of Scotland
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Saturday, November 29, 2008; Page D03
LONDON, Nov. 28 -- The British government will take over Royal Bank of Scotland Group with a majority stake of almost 60 percent after the shareholders of the nation's second-largest bank shunned an emergency share issue.
The $31 billion rescue, the result of a plan announced last month, means that dividends on common shares will be scrapped and top executives' bonuses will be canceled. Chief executive Fred Goodwin has resigned, and Chairman Tom McKillop, who last week apologized to shareholders for the 85 percent fall in the bank's share value, has said he will retire next year.
RBS has $2.8 trillion in assets, more than any British bank except for HSBC. Its worldwide operations include Citizens Financial Group, a commercial bank holding company headquartered in Providence, R.I., and Greenwich Capital Markets, based in Greenwich, Conn.
Fears about the solvency of RBS intensified this year as the global credit crisis contributed to its writing off $9.2 billion in bad loans. A third of that was due to last year's ill-timed acquisition of part of Dutch bank ABN Amro.
The government's shares will be held by UK Financial Investments. Its charge is to maximize value for taxpayers and prevent politicians from making business decisions about the bank.
"The investment will be managed at an arm's length from government," a Treasury spokesman said.
The bank, which has indicated it could post its first-ever annual loss this year, was forced to resort last month to the British government's bailout plan, which offered as much as $57 billion to prop up RBS and two other British-based banks, Lloyds TSB Group and HBOS. In all three cases, the government guaranteed to buy shares not purchased by investors.
At the government's request, RBS announced a share issue a month ago at about 65.5 pence a share. But because its share price has fallen by almost a quarter since then, investors knew the government, in its role as guarantor of the issue, would end up having to shoulder the full amount when the deadline expired Friday. The result is an immediate $7.6 billion paper loss for taxpayers.
As long as the government owns preferential shares, its restrictions on dividends and bonuses will be enforced. The bank had already scrapped a cash dividend for the first half of the fiscal year 2008, paying instead a dividend in shares.
