RBS to raise billions through rights issue

RBS (RBS), Britain’s second largest bank, has confirmed it is preparing to raise billions of pounds through a rights issue to improve its financial position.

RBS will raise the money from existing investors through one of the biggest rights issues in corporate history.

Following the news, shares in the bank increased 4% to 380p as analysts interpreted the move as good news for the ailing banking sector.

Goldman Sachs and Merrill Lynch are believed to be organising the rights issue. While no final decision has been made, if RBS (which owns NatWest) does decide to proceed, it could prompt other banks to follow suit.

Justin Urquhart Stewart from Seven Investment Management said this is not something that should worry people and added it is not a customer issue, it is a shareholder issue.

Prime Minister, Gordon Brown, met with senior executives of Abbey, Barclays, HBOS, HSBC, Lloyds TSB, Nationwide and the RBS on Tuesday to discuss the housing market, to promote inter-bank lending and general market conditions.

The Bank of England is considering a plan to start accepting UK mortgage-backed securities in return for government bonds in an attempt to get banks lending to each other again, which in turn should ease up lending to individual borrowers.

Liberal Democrat Treasury spokesman Vince Cable supported the idea of a rights issue in addition to the Bank of England’s proposals and said it is positive and it’s necessary and it’s got to happen for all of the big banks.

American banks have raised billions of dollars to repair the damage caused by the sub-prime mortgage crisis. However, British banks have been reluctant to ask shareholders for more funding.

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