Royal Bank of Scotland has announced losses for 2008 of between £7billion and £8billion on bad debts, urging the Government to replace £5billion of its RBS preference shares with ordinary shares, pushing the taxpayer’s stake in the group from 58 per cent to almost 70 per cent.

RBS has also announced a goodwill writedown of between £15-£20billion, making it the biggest corporate loss ever seen in the UK.

Following a run of similarly poor results from the wider financial industry, the Treasury said in a statement today that, in the case of RBS, it has moved to “stabilise further its position and ensure it has the tools to enhance its contribution to the long term strength of the economy.”

But the Treasury is not injecting any new cash, it added; the new exchange of shares is part of last October’s £37billion Government bail-out plan for the banks. It is hoped that the money will ensure “continued protection for ordinary savers, depositors, businesses and borrowers; and maintaining a safeguard of the interest of the taxpayer.”

The announcement of help for RBS came as the Government unveiled the latest stage of its wider efforts to stabilise the banking system, insuring toxic debts which, it is hoped, will encourage banks to lend more freely.

Even Barclays has now agreed to participate in the recapitalisation scheme and give the Government a stake in it; the bank has previously caused controversy by refusing help from the government, and angering shareholders by accepting a £7billion injection from Middle Eastern investors instead.

Barclays and RBS shares experienced a sharp fall on Friday night in the wake of the news, losing 25 per cent and 13 per cent of their value respectively, but Barclays shares soared 17 per cent again this morning after it announced that 2008 earnings will exceed analysts forecasts.

RBS has said in a statement that the capital restructuring will “improve materially the quality of RBS’ capital structure”, which will in turn “further enhance RBS’ financial strength to the benefit of all customers, counterparties and investors.”

“The dislocation of credit markets and the global economic downturn continue to hit RBS hard, as with many other banks.” said Stephen Hester, chief executive of the RBS Group.

He added that the support from the Government “benefits all our stakeholders and enables us to provide more customer support in return.

“With enhanced core capital, removal of the preference share dividend and the prospect of further asset and liquidity measures, RBS is able to continue its strategic restructuring purposefully”.

© Fair Investment Company Ltd