RBS unveils $24 billion rights issue after fresh hit

By Steve Slater and Clara Ferreira-Marques

LONDON (Reuters) - Royal Bank of Scotland (RBS.L) unveiled a record 12 billion pound ($24 billion) rights issue to cover increased writedowns on the value of toxic assets and help repair one of the sector's most stretched balance sheets.

Britain's second biggest bank said on Tuesday it would also sell assets to generate 4 billion pounds in core capital this year, mostly from the possible disposal of all or a stake in its insurance arm, which includes brands Direct Line and Churchill.

The biggest-ever rights issue and planned disposals will allow RBS to rebuild its capital reserves, which have been stretched by its part in last year's takeover of Dutch bank ABN AMRO and turmoil in financial markets in recent months.

RBS will offer 11 new shares for every 18 existing shares at 200 pence per share in the underwritten rights issue, representing a 46 percent discount to Monday's closing price.

The size of the extra shares alone would represent Britain's 30th-biggest company.

By 1520 GMT, RBS shares were down 4.7 percent at 355 pence, valuing the bank at 36 billion pounds. The theoretical ex-rights price for the shares is 307p, based on Monday's close.

"It's a reassuring discount, and investors will be pleased that it's such a large amount and not 5 or 6 billion," said Mark Sartori, head of European trading at Fox-Pitt, Kelton. "They want RBS to raise some money so the company can move forward."

RBS said it expects additional hits to the value of assets, including the ABN AMRO wholesale business it bought last year, due to the impact of the U.S. subprime mortgage crisis and subsequent credit crunch. It estimated the effect of writedowns on core capital will be 5.9 billion pounds, or 4.3 billion pounds after tax.

The bank, which wrote down assets by 2.4 billion pounds last year, said the scale of its latest markdowns was conservative and had been checked by advisers. It valued below-prime Alt-A mortgages, for example, at 50 percent, down from 83 percent.

Analysts said any further big hits seemed unlikely.

Conditions in financial markets had deteriorated sharply in March and trading in parts of its investment bank arm had been hit by the turmoil, the bank said, but said overall recent trading had been satisfactory. It said expectations for 2008 were in line with the consensus market forecast.

U-TURN

Both the rights issue and the increased writedown were no surprise after several days of widespread speculation, but they mark an abrupt U-turn for RBS which said earlier this year it did not need to raise capital.

RBS Chairman Tom McKillop told reporters on a conference call his board "unanimously" backed executives "to steer the bank successfully through this tricky period."

After some investors called for heads to roll, he staunchly defended under-fire Chief Executive Fred Goodwin.