Royal Bank of Scotland is set to reveal about £4bn (€5bn) of losses from the credit turmoil next week in a move likely further to anger shareholders already dismayed at plans for a rights issue of at least £10bn.
Expected losses at RBS underscore pressure on the world’s largest banks from the continued slide in the credit markets during March. Citigroup on Friday announced a $5.1bn (€3.2bn) loss for the first quarter and nearly $16bn in writedowns.
But news of the RBS rights issue and Citigroup’s loss prompted a sharp rally in stock markets in the US and Europe on Friday on hopes that leading banks were closer to dealing with the worst of their problems.
RBS’s rights issue is a sign that European banks, which have lagged behind US rivals in raising fresh capital, are getting to grips with the need to strengthen balance sheets.
The FTSE 100 index closed up 1.3 per cent, boosted by a rise in bank shares, while the FTSE Eurofirst ended up 2.4 per cent. On Wall Street, the S&P 500 rose more than 2 per cent in early afternoon trading.
RBS shares rose almost 5 per cent to 374p, while Citigroup’s shares closed 4.5 per cent higher at $25.11 in New York trading.
People familiar with the matter said the board of RBS would meet this weekend to approve the losses and the rights issue, which would be fully underwritten by banks including Merrill Lynch, Goldman Sachs and UBS.
The proposed rights issue has triggered calls from some shareholders for the departure of Sir Fred Goodwin, RBS’s chief executive, who masterminded the bank’s role in leading the €71bn break-up bid for ABN Amro last summer.
Both Sir Fred and Sir Tom McKillop, RBS chairman, have in recent weeks insisted that the bank did not need fresh capital.
Several large investors in RBS said the surprise announcement raised questions about the role of the whole board. “I should think the board of Royal Bank is severely chastened,” said one. Another said: “The chairman’s credibility has turned to mush.”
Additional reporting by Andrea Felsted and Chris Hughes