Government gets majority stake in RBS as investors shun rights

Government will own 58 per cent of bank in historic day for the sector

The Government will hand Royal Bank of Scotland a cheque for £20bn on Monday to take a majority stake in Britain's second biggest bank after RBS shareholders snubbed a £15bn share offer to shore up its capital buffer.

RBS announced yesterday that its shareholders took up just 0.24 per cent of the new shares on offer, leaving the Treasury, which underwrote the share issue, to buy 57.9 per cent of the bank for about £15bn. The Government will also own £5bn of high-yielding preference shares. The failure of the share sale was expected because RBS's shares had consistently traded below the 65.5p offer price, meaning that they could be bought cheaper in the market. RBS shares rose 0.6 per cent to 55.3p, leaving the Government with a paper loss of £2.3bn. But the part-nationalisation is a sobering moment for British banking as what was once one of the world's most admired banks comes under the state's control.

The Treasury insists its stake in RBS will be managed at "arm's length" by UK Financial Investments, the new company it has set up to oversee its stakes in Britain's stricken lenders. But after weeks of bank-bashing, shareholders suspect that the Government will lean on RBS to make credit available to UK businesses and consumers over its international businesses.

An RBS shareholder said: "The cynical view, which is a typical fund management view, is that you can't trust the Government as far as you can throw them. If you didn't already invest in RBS, why would you invest in something where the Government, if not pulling the strings, is influencing policy?"

RBS is looking for three new independent directors, who will be vetted by the Government. The bank will not be able to pay a dividend while the Treasury holds the five-year preference shares and is paying no bonuses to executive directors this year.

The Office of National Statistics will decide in the next few weeks to what extent RBS's £1.9 trillion balance sheet will go on to the Government's books. With the Treasury holding more than half RBS's voting shares and influence over the appointment of directors, economists said the ONS would probably classify RBS as a public corporation.

RBS is the biggest recipient of extra capital after the Government forced banks to boost their buffers against losses to stabilise the banking system. RBS came close to collapse before the Government's intervention as panicked shareholders and depositors lost confidence in the once mighty bank.

The Government is also on track to buy about £17bn of stock in Lloyds TSB and Halifax Bank of Scotland that would leave it owning 43.5 per cent of the combined bank after Lloyds buys HBOS early next year. Lloyds and HBOS shares both closed below the offer prices for their capital raisings, which are also underwritten by the Government, though Lloyds shares rose 35 per cent last week to 168p, close to the 173.3p offer price.

RBS is trying to draw a line under its recent woes under new management. Stephen Hester, theformer boss of British Land, took over from Sir Fred Goodwin on Monday and has said nothing is off limits as he strips out risky businesses left over from the debt bubble. Mr 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."

Start your day with The Independent, sign up for daily news emails
general electionThis quiz matches undecided voters with the best party for them
Life and Style
Men with beards rejoice: Your beard probably doesn't harbour faeces-like bacteria
Arts and Entertainment
Keira Knightley and Matthew Macfadyen starred in the big screen adaptation of Austen's novel in 2005
tvStar says studios are forcing actors to get buff for period roles
ebooksA celebration of British elections
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Ashdown Group: Trainee Consultant - Surrey/ South West London

£22000 per annum + pension,bonus,career progression: Ashdown Group: An establi...

Ashdown Group: Trainee Consultant - Surrey / South West London

£22000 per annum + pension,bonus,career progression: Ashdown Group: An establi...

Recruitment Genius: Claims Administrator

£16000 - £18500 per annum: Recruitment Genius: This is an excellent opportunit...

Recruitment Genius: Senior SEO Executive

£24000 - £28000 per annum: Recruitment Genius: A Senior SEO Executive is requi...

Day In a Page

Fishing for votes with Nigel Farage: The Ukip leader shows how he can work an audience as he casts his line to the disaffected of Grimsby

Fishing is on Nigel Farage's mind

Ukip leader casts a line to the disaffected
Who is bombing whom in the Middle East? It's amazing they don't all hit each other

Who is bombing whom in the Middle East?

Robert Fisk untangles the countries and factions
China's influence on fashion: At the top of the game both creatively and commercially

China's influence on fashion

At the top of the game both creatively and commercially
Lord O’Donnell: Former cabinet secretary on the election and life away from the levers of power

The man known as GOD has a reputation for getting the job done

Lord O'Donnell's three principles of rule
Rainbow shades: It's all bright on the night

Rainbow shades

It's all bright on the night
'It was first time I had ever tasted chocolate. I kept a piece, and when Amsterdam was liberated, I gave it to the first Allied soldier I saw'

Bread from heaven

Dutch survivors thank RAF for World War II drop that saved millions
Britain will be 'run for the wealthy and powerful' if Tories retain power - Labour

How 'the Axe' helped Labour

UK will be 'run for the wealthy and powerful' if Tories retain power
Rare and exclusive video shows the horrific price paid by activists for challenging the rule of jihadist extremists in Syria

The price to be paid for challenging the rule of extremists

A revolution now 'consuming its own children'
Welcome to the world of Megagames

Welcome to the world of Megagames

300 players take part in Watch the Skies! board game in London
'Nymphomaniac' actress reveals what it was really like to star in one of the most explicit films ever

Charlotte Gainsbourg on 'Nymphomaniac'

Starring in one of the most explicit films ever
Robert Fisk in Abu Dhabi: The Emirates' out-of-sight migrant workers helping to build the dream projects of its rulers

Robert Fisk in Abu Dhabi

The Emirates' out-of-sight migrant workers helping to build the dream projects of its rulers
Vince Cable interview: Charging fees for employment tribunals was 'a very bad move'

Vince Cable exclusive interview

Charging fees for employment tribunals was 'a very bad move'
Iwan Rheon interview: Game of Thrones star returns to his Welsh roots to record debut album

Iwan Rheon is returning to his Welsh roots

Rheon is best known for his role as the Bastard of Bolton. It's gruelling playing a sadistic torturer, he tells Craig McLean, but it hasn't stopped him recording an album of Welsh psychedelia
Morne Hardenberg interview: Cameraman for BBC's upcoming show Shark on filming the ocean's most dangerous predator

It's time for my close-up

Meet the man who films great whites for a living
Increasing numbers of homeless people in America keep their mobile phones on the streets

Homeless people keep mobile phones

A homeless person with a smartphone is a common sight in the US. And that's creating a network where the 'hobo' community can share information - and fight stigma - like never before