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Fears over the future of RBS after shares take a battering

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by Kay Mitchell
”Fears

The turmoil in the stock markets continues this morning after shares in Royal Bank of Scotland (RBS) plummeted by over 35% to below the £1 mark. The bank is now worth just £16 billion, compared to £75 billion a year ago.

RBS shares plunged to 95p, the lowest point since the recession of the early 1990s.

Speculation is mounting that RBS has approached the Government about a capital injection and will be the next bank to receive assistance. However, Sir Fred Goodwin, RBS chief executive, declined to comment when asked about this at a banking conference in the City.

Meanwhile, RBS had its credit rating cut yesterday by Standard & Poor’s for the first time in a decade. RBS, which is Britain’s second-largest bank, was downgraded to A+ from AA-.

Commenting on the rating, Nigel Greenwood an analyst at Standard & Poor’s, said the downgrade reflects Standard & Poor’s expectation that RBS’ financial profile may continue to weaken.

Last night, talks were held between the Chancellor Alistair Darling and the heads of Britain’s leading banks with regard to a £50 billion injection of equity. Another meeting is scheduled for later today.

Meanwhile, shares in Lloyds TSB fell by 20% this morning while Barclays lost 10%.

In related news, the Bank of England’s Monetary Policy Committee is to meet this week to set UK interest rates. Many economists believe that a quarter point reduction is inevitable.

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News posted: October 7, 2008

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