Royal Bank of Scotland announced a record 12 billion pound rights issue on Tuesday to cover a potential 5.9 billion pound writedown on the value of toxic assets and help rebuild a stretched balance sheet.
RBS said it expects disposals to generate 4 billion pounds in core capital by the end of this year and could sell all or part of its insurance business.
RBS will offer 11 new shares for every 18 existing shares at 200 pence per share in the rights issue, Europe's biggest ever, representing a 46 percent discount to Monday's closing price.
"It's a reassuring discount, and investors will be pleased that it's such a large amount and not 5 or 6 billion - they want RBS to raise some money so that the company can move forward," said Mark Sartori, head of European trading at Fox-Pitt, Kelton.
The bank said it had assumed there will be additional hits to the value of assets, including the ABN 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 4.3 billion pounds net of tax, or 5.9 billion pounds before tax.
Both the rights issue and writedown were no surprise after several days of widespread speculation, but they mark an abrupt U-turn for RBS after it said earlier this year it did not need to raise capital.
RBS said it plans to keep core tier 1 capital in excess of 6 percent, which would make it one of Europe's best capitalised banks. The ratio stood at 4.5 percent at the end of 2007, one of the lowest in Europe.
