More rights issues to emerge warns Mervyn King

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Royal Bank of Scotland (RBS) has confirmed it is preparing to raise £12 billion through a rights issue to improve its financial position.

RBS said it needed to shore up its balance sheet and a rights issue was the best action to take.

However, Mervyn King, the Bank of England’s Governor has warned that the rights issue from RBS could result in a flurry of rights issues from struggling High Street lenders.

Yesterday, Mr King said the cash call will lay the foundation for massive repair work throughout the banking industry, which put investors on high alert.

Mr King said I am pleased that banks have recognised the need to raise capital and I suspect we will see more of it in the coming weeks.

However, he informed banks that the £50 million rescue plan, announced earlier this week, will not stretch to repairing balance sheets.

Concern is spreading through government circles that the major High Street banks are paying out nearly £10 billion in dividends to shareholders at a time when they’re asking the Government for help.

According to analysts at Wall Street bank, JP Morgan, Britain’s four biggest lenders (RBS, HBOS, Barclays and Lloyds TSB) are facing a combined funding shortfall of £37 billion.

JP Morgan said the lenders either need to reduce their lending businesses or raise fresh capital.

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