RBS Investors Back Plans to Sell 30 Billion of Stock

Royal Bank of Scotland Group Plc shareholders approved plans to raise 20 billion pounds ($30 billion) after the chairman conceded it was caught off guard by the credit crunch and didn't move fast enough to increase capital.

RBS rose 8.8 percent in London trading after investors at a meeting in Edinburgh voted more than 99 percent in favor of offering 15 billion pounds of ordinary shares and selling 5 billion pounds of preferred stock to the government. Unless RBS shares recover or investors opt to pay more than market value, the U.K. will own about 60 percent of the bank.

The government ``will be more engaged in affairs of institutions and markets,'' said Stephen Hester, who takes over tomorrow as chief executive officer. There will be job losses and the next couple of years will be difficult, he said. ``We have to absorb all sorts of buffeting from the outside world.''

RBS, which ousted CEO Fred Goodwin last month, was Britain's second-biggest bank before it lost 88 percent of its market value this year. Chairman Tom McKillop said he is ``grateful for the government's intervention,'' calling it ``essential to the group's ability to do business.'' RBS will take almost half of the 37 billions pounds that the U.K. set aside to bail out banks and follows London-based Lloyds TSB Group Plc in getting shareholders to approve a government rescue with strings attached.

``My fear now is that it could be prey for foreign banks,'' said Danny Lee, 33, a lawyer from Edinburgh who owns RBS stock. ``It is a tragedy for Scotland and Edinburgh in particular.''

`Difficult Times'

The purchase of investment-banking assets from Amsterdam- based ABN Amro Holding NV ``increased the short-term vulnerability of the group to the financial crisis,'' McKillop said. ``Had we known the severe market dislocation and economic deterioration we would face, we would, of course, have built up larger capital reserves earlier'' as the credit crisis worsened.

RBS may post its first full-year loss in 40 years and write down more assets this year as bad loans rise, the bank said earlier this month. It has taken more than 7 billion pounds of credit losses this year and will probably take more writedowns in the fourth quarter, it said on Nov. 4.

McKillop said he is ``invested heavily'' in RBS and is ``profoundly sorry'' that the company had to ask shareholders to approve two rounds of fundraising this year. RBS, which sold 12.3 billion pounds of stock in a rights offering in June, plans to offer common stock to existing investors underwritten by the U.K. at 65.5 pence a share in a deal closing next week. It will also preferred stock to the government paying an annual interest rate of 12 percent.

Shares Rise

RBS rose to 46 pence in London, valuing the bank at 7.6 billion pounds. That's 30 percent below the price RBS set for the 15 billion-pound rights offering closing Nov. 25.

Lloyds TSB rose 5.7 percent today to 125.3 pence, valuing it at 7.6 billion pounds. Lloyds TSB shareholders met yesterday in Glasgow and backed plans to raise 5.5 billion pounds in the U.K. bailout plan.

Hester acknowledged that few shareholders have an incentive to take part in RBS's stock offering. ``My view is that shareholders will be economically rational,'' Hester said. The government's involvement is ``the price we have to pay for the position we're in.''

Hester aims to sell assets to improve risk controls and mitigate further losses. RBS plans to cut 3,000 jobs at its securities unit over the next few months and dispose of 100 billion pounds of assets at the division by the end of the year.

He is distancing himself from Goodwin, who used leveraged loans, securities trading and $90 billion of acquisitions to turn RBS into one of the biggest banks in the world during his eight years as CEO. Goodwin's acquisition of ABN Amro assets last year triggered a third of the bank's writedowns and eroded its capital.

`Extremely Sorry'

``I'm extremely sorry that this has come about,'' Goodwin said today, referring to the capital raising. ``I'm extremely sorry to be leaving the company in extremely difficult times.''

RBS plans to repay the government's preference shares as soon as it's ``prudent'' and will restart cash dividend payouts, it said today. The bank, which has waived management's cash bonuses in 2008 and 2009, must also cap executive pay and commit to lending levels set by the government.

McKillop will step down at the bank's shareholder meeting in April, RBS said when it announced the capital raising on Oct. 13. Investment banking head Johnny Cameron stepped down from his post, the bank also said at the time.

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RBS Investors Back Plans to Sell 30 Billion of Stock