RBS 'ponders share rights issue'

By Joe Lynam
BBC business correspondent

RBS has declined to comment on the matter

Royal Bank of Scotland is considering approaching the market for extra money to avoid handing more control to the government, the BBC understands.

The bank, now 70% owned by taxpayers, is preparing to join the government's Asset Protection Scheme (APS) to stop some toxic investments going bad.

But it is also considering asking shareholders to invest further to prevent the government's stake rising.

The bank - once Britain's second largest - has declined to comment.

Rising share price

A shareholder investment would dilute the share value but stop the government's stake increasing from 70% to a possible 84.5% if it insured all its bad assets with the APS.

As part of the process of gauging the mood of the market for a cash call or rights issue, RBS has consulted with its largest single shareholder - UK Financial Investments (UKFI).

Lloyds is seeking to exit the insurance scheme all together

The Treasury set the body up to manage the government's stake in commercial banks including RBS, Lloyds Banking Group and Bradford & Bingley.

Sources at UKFI told the BBC it was in regular touch with the management of banks it has stakes in, though would not comment on possible rights issues.

The overall stability of the financial system as well as securing the best interests and return on investment for taxpayers was its concern, the UKFI sources said.

The RBS speculation comes after Lloyds Banking Group confirmed on Friday it was looking at alternatives to participating in the APS.

Lloyds is 43% owned by the government, and the BBC understands that the bank has been told by the Treasury that it would need to strengthen its balance sheet by "well over £20bn" if it wanted to leave the APS.

Analysts say both RBS and Lloyds want to reduce their exposure to APS because of the fees the government charges, and also because they wish to reassert their independence.

Mirroring the rise in the UK's main FTSE 100 index since March, RBS's shares closed on Friday at 56p, after falling as low as 10p in January.