http://online.wsj.com/article/SB122788503709864215.html?mod=googlenews_wsj
LONDON -- In an expected move, Royal Bank of Scotland Group PLC said the U.K. government is to take majority control of the bank, after its shareholders took up just 0.24% of its £15 billion ($23.1 billion) stock offering.
The offer was priced at 65.5 pence ($1.01) a share, but as RBS stock hasn't traded above that level since Nov. 7, the lackluster investor participation came as no surprise. As underwriter, the U.K. government will be left with 57.9% of the bank's shares. The deal forms the biggest portion of the government's plan to recapitalize the country's banks.
RBS's shares Friday rose 0.6%, to 55.3 pence, while the FTSE 100 index was up 1.5%.
The capital increase will fatten up RBS's balance sheet, making the bank more resilient amid the weakening economy and providing a cushion against impairments and further asset-value deterioration. But, along with the previously agreed £5 billion preference-share issue to the government, the deal comes with a strategic overhaul of the bank and a moratorium on dividends.
RBS won't be able to pay dividends until it has repaid the preference shares, which mature in five years. The bank has indicated it wants to redeem the preference shares within 12 to 18 months, assuming the government agrees to early redemption.
"We welcome completion of the capital raising process that has strengthened RBS considerably," Chief Executive Stephen Hester said in a statement.
Mr. Hester thanked the government for underwriting the offer. "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," he said.
RBS's new management team will focus on rebuilding the bank, Mr. Hester said, adding that "there remain substantial uncertainties and challenges outside our control but for our part the job is under way."
The government's move to take control of RBS was expected, said Oriel Securities analyst Michael Trippitt, adding that "it's unclear whether the government has very much to add" because Mr. Hester is already set to conduct a review of the business over the next year.
"In such a tenuous and difficult point in time, you just have to get on with getting the business on a firm footing. That could take about a year," Mr. Trippitt said. "In theory, the government could control things like bonuses, but there aren't any profits with which to pay bonuses," he said.
Mr. Hester's review of the bank will continue until the second quarter of next year. He has said that no business lines are safe and that job losses are to be expected as economic-activity levels decline.
The global banking and markets business is seen as particularly vulnerable because of the reduced business activity in the past year, and because it has suffered heavy losses on credit investments.
RBS has been one Europe's hardest-hit banks in the financial crisis because of its big exposure to subprime loans and its acquisition of parts of Dutch bank ABN Amro Holding NV just before the credit crunch.
Write to Vladimir Guevarra at vladimir.guevarra@dowjones.com and Ragnhild Kjetland at ragnhild.kjetland@dowjones.com
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