RBS has today confirmed its plans to boost its balance sheet by issuing a £12 billion rights issue, the biggest in corporate history so far.

The rights issue will encourage RBS investors to buy new shares at a discount of almost 50 per cent. According to RBS’ statement, released today, the rights issue will offer 11 new shares for every 18 shares an investor holds, at a discounted rate of 200 pence per share, 154 pence less than this mornings share value.

The announcement came simultaneously as news that RBS had run up a massive £5.9 billion in write-downs as a result of sub-prime mortgage related assets and loans, three times the losses the bank has recognised so far.

In its statement, RBS announced that further capital may be raised from disposals, including the possible sale of its insurance division, which owns Direct Line and Churchill.

The rights issue, thought to be a result of RBS’ lead in the €71 billion takeover of Dutch bank Amro last year has so far resulted in a share price fall of 18.75 pence today.

Defending the decision, RBS Chairman, Sir Tom McKillop said: “This is a difficult time for the financial services industry, and it has presented us with specific challenges. Central to these has been the question of our capital ratios, which have been the focus of much attention, both internal and external, over recent months.”

Sir Tom continued to argue that speed is of the essence in the current market environment, saying: “In discussions with shareholders, it was clear that many of them had reached a similar conclusion, hence today’s announcement that we are launching a rights issue to re-position capital ratios and strengthen our capital base.”

Commenting on the importance of honest write-down and disposal predictions in the forecasting of the banks future, Sir Tom said: “Naturally, shareholders wish to understand what we have assumed in relation to the prospects for further write-downs and disposals of non-core assets, and today’s announcement seeks to clarify the basis of our capital planning.”

The announcement comes in the wake of the Bank of England’s plans to take action and inject £50 billion into the market in an attempt to reduce liquidity.

Speaking at a briefing yesterday, Governor of the Bank of England, Mervyn King, speaking of the RBS rights issue, said: “I’m pleased that banks have recognised the need to raise capital. I expect we will see more of it in the coming weeks.”

© Fair Investment Company Ltd