Page last updated at 12:33 GMT, Friday, 6 June 2008 13:33 UK

RBS share buy-up deadline passes

RBS sign
RBS needs to strengthen its balance sheet

Royal Bank of Scotland (RBS) is to announce later whether its shareholders have agreed to invest an extra 12bn in the firm to boost its capital.

The bank launched a rights issue last month and existing investors had until Friday morning to take up the deal.

RBS will use money raised to help cover losses related to the credit crunch.

The rights issue is underwritten, meaning that RBS is guaranteed to get the cash even if shareholders do not come on board to raise the full amount.

HBOS and Bradford & Bingley have also asked their investors for extra cash.

HBOS wants to raise 4bn, while B&B is planning to raise 300m.

Cheap enough?

As a result of the sub-prime crisis, banks have been reluctant to lend to each other and found it harder to raise capital.

Companies issue extra shares to raise money
They are offered to existing shareholders, usually at a discount to the current share price
Shares are offered in proportion to existing holdings, so if you own 10% of the old shares you are offered 10% of the new ones

RBS and other banks have also suffered from a drop in the value of risky assets, particularly those related to the US sub-prime market that lends to homebuyers with poor credit histories.

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

There are about 200,000 RBS shareholders; 93% of the shares are held by major investors, such as pension funds, with the other 7% owned by private individuals.

Shareholders are generally not keen on new share issues because it means that their investments are diluted, the firms' earnings are spread more thinly and each share takes a smaller slice of the company's earnings.

To compensate for these downsides, they are offered the shares at a discount to the market price so they could sell for a quick profit.

Analysts say that the big question is whether the discount is large enough - with the bank's shares having more than halved in value over the past year.

The shares are worth 2.60 but with the discount, cost 2 each.

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