Royal Bank of Scotland has been forced to apologise to shareholders for its record £12bn rights issue, but the bank presented a united front in defence of Sir Fred Goodwin, its chief executive.
Britain's second-biggest bank said it had decided to ask shareholders to help shore up its capital position despite insisting in the past there was no need for a rights issue because credit markets and the economic outlook had changed, leaving it exposed to further potential losses after writing down £5.9bn this year.
Sir Tom McKillop, RBS's chairman, admitted that the acquisition of ABN Amro, which accounted for a third of the new writedowns, could now be seen as bad timing.
"These are very big sums [of money] and we recognise that," said Sir Tom. "This is a big ask of our shareholders. We asked for that with a very high degree of humility... You should be in no doubt about [the] degree of contrition."
Sir Fred is under fire for buying ABN Amro in November as the credit crunch took hold, leaving RBS exposed to a downturn in financial markets. ABN was the latest in a string of deals that were unpopular with investors, who were also wary of RBS's tight capital ratios.
But Sir Tom said the board took collective responsibility for the bank's predicament and indicated that Sir Fred's head would not roll. "We have got to focus on looking forward from here," the chairman insisted. "There is no single individual responsible for these events. To look for sacrificial lambs just misses the whole point."
Sir Fred said as recently as late February that RBS could trade its way back to capital strength and poured scorn on analysts who said the bank would need to raise capital.
The chief executive refused to discuss whether he had considered resigning. He admitted that lessons to be learnt included the importance of liquidity and the danger of relying on credit ratings to judge assets. "There is no substitute for having high levels of capital when unforeseen events happen," he added.
Sir Tom said RBS had paid a high price for ABN Amro and that the deal left RBS more exposed to turbulent wholesale markets. He insisted that the £10bn purchase of ABN's wholesale and international business was a good deal for shareholders.
RBS's cash call will offer existing shareholders 11 new shares for every 18 they hold at 200p a share. RBS will launch the issue after an extraordinary general meeting in mid-May and the new shares will start trading in June. RBS will pay Goldman Sachs, Merrill Lynch and UBS up to £210m for fully underwriting the share sale.
Today Sir Tom and the rest of the board will face shareholders at the bank's annual general meeting in Edinburgh, which promises to be a rockier affair than usual.
RBS's core tier one capital ratio – its strongest buffer against losses – will rise to more than 6 per cent by the end of this year from 4 per cent at the end of 2007. On top of the rights issue, the bank will look to sell businesses including the Direct Line and Churchill insurance units.
The bank also said that it would pay its interim dividend for 2008 in shares rather than cash, saving it a significant sum.
Sir Tom revealed that he had met leading shareholders in January and February to discuss what the bank should do if its capital was under strain. In March the worsening financial climate put a rights issue on the agenda, he said. With business nearly dead in some divisions, there will be "notable" extra job losses at the corporate and markets business, Johnny Cameron, its head, said.
Simon Maughan, an analyst at MF Global, said: "They are trying to blame this on the credit crunch but the credit crunch is a function of the credit boom that went before it. RBS is one of the largest and most aggressive banks in the world and was complicit in driving up that credit boom."
RBS shares closed down 3.9 per cent at 358p.
RBS apologises to shareholders
Sir Tom McKillop: 'There are no patsies on this board... Are we perfect? No. Can you debate whether we have made mistakes? Yes.'
Sir Tom: 'We have got to focus on looking forward from here. There is nosingle individual responsible for these events. To look for sacrificial lambs just misses the whole point.'
Sir Tom: 'This is a big ask of our shareholders. We asked for that witha very high degreeof humility. You shouldbe in no doubt about the degree of contrition.'
Sir Fred Goodwin 'There have been times when we haven't understood what has been going on in the markets. We are in good company there.'
Sir Fred: [on whether this is his most stressful time at Royal Bank of Scotland]: 'I certainly hope so.'Reuse content