RBS -- New owner, new management, new bank

By Steve Slater

LONDON, Oct 13 (Reuters) - Just over a year ago Royal Bank of Scotland (RBS.L) was about to seal the world's biggest bank takeover. How are the mighty fallen.

Now it faces being majority owned by Britain's government because it needs over 30 billion pounds ($52 billion) of emergency funds, has swept in a new chief executive, and is going back to basics after being undone by the financial market crisis. [ID:nLD167263]

"Leverage is great in boom times, but it can be awfully dangerous when things get difficult, especially if they get difficult quickly," said RBS Chairman Tom McKillop.

The 281 year old Edinburgh-based bank is raising 20 billion pounds through the sale of ordinary and preference shares. If investors do not buy into the offer the UK government will own 57 percent of it.

Its battered shares dipped 8.7 percent to 65.5 pence by 1130 GMT, the level that new shares are being sold at. Dealers said there were concerns investors won't sign up, the bank will not pay a dividend for years and faces a deteriorating UK housing and commercial property market and other tough markets.

RBS already raised 12 billion pounds in June, yet the bank's market value has crashed to less than that.

The bank said the government-backed rescue deal was necessary after several banks collapsed under the strain of the financial crisis, and it now had to take its medicine.

McKillop will step down after the fundraising and Chief Executive Fred Goodwin, at the helm for eight years, will be replaced by Stephen Hester, CEO of property firm British Land (BLND.L) who only joined the RBS board 12 days ago. [ID:nLD310689]

Johnny Cameron, head of the investment bank arm, will also be replaced.

Mark Burgess, head of equities at Legal & General, one of the bank's biggest investors, said changes at the helm of UK banks had been needed "for a fresh approach and strategy."

Hester, who will overhaul that strategy, said there would be "no sacred cows" when asked if U.S. bank Citizens could be sold.

"When we come out of this ... we will be a strong international bank with global operations, but they will have a different shape and balance in terms of risk profile and focus on the customer," he told reporters on a conference call.

SHRINKING BANK

RBS will deleverage its balance sheet and scale down its global banking and markets (GBM) investment bank arm. GBM had bulked up after last year's purchase of ABN AMRO's investment bank, but it will now refocus on its core strengths of providing risk management, financing and transaction services.

That will see it cut proprietary risk, mainly by reduced structured credit activity, and cut back on capital-intensive businesses.

RBS said it will sell assets, but did not say what has been earmarked to go, and has already sold assets in the past year.

It expects to sell its insurance arm and is in advanced talks with "a couple" of interested parties, although analysts said it's unlikely to fetch the 7 billion pounds it had wanted for the business.

Investors are unlikely to get a dividend for at least a year. No dividend will be paid until 5 billion pounds of preference shares taken by the government has been repaid.

Its main businesses are also facing stiff economic headwinds, notably in Britain, the United States and Ireland. (Additional reporting by Dominic Lau)