Page last updated at 15:01 GMT, Wednesday, 23 April 2008 16:01 UK

RBS backs 'decisive' share move

Sir Fred Goodwin, RBS chief executive
The meeting could be uncomfortable for Sir Fred Goodwin

Royal Bank of Scotland (RBS) has defended its plan to raise 12bn in capital from investors, saying it is in the "best interests" of shareholders.

Chairman Tom McKillop told the bank's annual meeting in Edinburgh that it had taken "decisive action" in the face of the continuing global credit crunch.

Chief executive Sir Fred Goodwin and other bosses are likely to come under fire at the meeting.

The rights issue marks an embarrassing U-turn for the bank.

'Changed world'

The UK's second largest bank revealed on Tuesday that it would ask its investors to buy extra shares to help the group shore up its finances in the wake of the credit crunch.

The time had come to take decisive action
Tom McKillop, RBS chairman

Less than two months ago, the bank said it did not need to raise capital.

But Mr McKillop said this was now the right move at the right time.

"The time had come to take decisive action to rebase the capital," he said. "We are convinced the actions announced were in the best interests of shareholders."

On Tuesday, Sir Fred said the cash was required because "the world had changed".

With continuing fears over the US slowdown, and in particular the housing sector, banks have been reluctant to lend to each other and found it harder to raise capital.

In its trading update on Tuesday, the firm also announced a write-down of 5.9bn before tax, following its exposure to the credit markets.

Analysts argue that RBS's circumstances have been exacerbated after its lead role in acquiring ABN Amro for 71bn euros last year.

Since then, markets have continued to deteriorate, making it harder to raise funds.

Management

Analysts added that the refinancing would raise questions about management credibility, but said the rights issue, the UK's biggest, was expected to be well supported by shareholders.

The bank has announced the appointment of three extra non-executive directors, in what some have seen as a move to reduce Sir Fred's dominance.

David Cumming, head of UK equities at Standard Life investments - which holds 3.5% of RBS - said he supported Sir Fred.

But he added: "However, he has to fully engage with his shareholder base and a strengthened non-executive board to maintain that support."

There are about 200,000 RBS shareholders, of which 93% are major investors, such as pension funds, with the other 7% made up of private individuals.




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