UK takes 58 percent RBS stake as investors shun deal

LONDON (Reuters) - Britain bought a 58 percent stake in Royal Bank of Scotland (RBS.L) on Friday as the state picked up 15 billion pounds ($23 billion) of shares in the lender after investors shunned a rescue plan.

It marks the latest attempt by European countries and the United States to shore up ailing banks to halt the fallout from a global credit crisis, and adds to UK taxpayers' exposure to the sector after the nationalization of two smaller lenders earlier in the year.

RBS said its investors took just 0.2 percent of the shares on offer -- including purchases by board members -- to leave the government with the remaining 22.8 billion shares.

Take-up was expected to be minimal after RBS shares fell below the 65.5 pence per share offer price.

Evolution Securities analyst Bruce Packard said: "The weekend papers will be full of it, but it didn't surprise anyone in the City.

"It was expected because the share price was trading below the rights price."

SHARES FALL

By 5:03 a.m. EST RBS shares were down 4.55 percent at 52.5 pence, giving the state a paper loss of over 2.6 billion pounds on the purchase.

Britain is also buying 5 billion pounds of preference shares from RBS, and is set to take big stakes in merger partners Lloyds TSB (LLOY.L) and HBOS HBOS.L under a 37 billion pound bailout plan unveiled last month.

UK Financial Investments, the company set up by the government to manage its banking stakes, on Thursday hired John Crompton from Merrill Lynch MER.N, an experienced equity capital markets banker, to devise and execute a strategy for the sale of the holdings.

Sales are not expected until markets recover, which could leave the state holding the stakes for several years, analysts said.

RBS Chief Executive Stephen Hester said: "We regret that existing shareholders did not take up their pre-emptive rights but understand that market sentiment toward the banking sector made this uneconomic in the short term."

"We must put the past behind us and move forward with a clear focus on what we need to do next. There remain substantial uncertainties and challenges outside our control but for our part the job is underway."

RBS, once the second-biggest bank in the UK, was left short of capital as a result of hefty write-offs against debt-backed securities. Last year's acquisition of parts of Dutch rival ABN AMRO put further strain on its capital reserves.

(Editing by Sharon Lindores)