RBS Writedowns May Reach 7 Billion Pounds, Times Says

RBS Writedowns May Reach 7 Billion Pounds, Times Says

April 20 (Bloomberg) -- Royal Bank of Scotland Group Plc will announce writedowns of between 5 billion pounds ($10 billion) and 7 billion pounds this week as it prepares a share sale, the Sunday Times reported, without saying where it got the information.

The U.K.'s second-biggest lender, whose board meets today, also plans to announce a stock offering of between 10 billion and 12 billion pounds, and is looking to raise as much as 5 billion pounds by the end of this financial year through asset disposals, the newspaper said.

Led by Chief Executive Officer Fred Goodwin, Edinburgh- based Royal Bank is the most indebted of the biggest U.K. banks after paying about 72 billion euros with Banco Santander SA and Fortis for ABN Amro Holding NV, mostly in cash.

``It probably is worse than what people are expecting,'' Sandy Chen, a London-based analyst at Panmure Gordon, said yesterday, referring to the potential credit-related losses at Royal Bank. He has a ``sell'' recommendation on the stock.

Royal Bank is considering a share sale to shore up capital, according to a person with knowledge of the plan. The bank needs to meet capital-adequacy requirements after about 2.6 billion pounds of markdowns, the person said on April 18, declining to be identified as no decision had been made.

``We will fully update the market next week on both trading and capital,'' Carolyn McAdam, a spokeswoman for Royal Bank, told Bloomberg News today. She declined to comment further.

Capital Ratio

RBS has a so-called equity Tier 1 capital ratio of about 4.5 percent, trailing Barclays Plc, the one-time rival suitor for ABN Amro, at about 5.1 percent and Lloyds TSB Group Plc at 7.4 percent, UBS AG analysts estimated April 16. The ratio is bolstered by some ABN Amro assets it has yet to split off. Its target is 5.25 percent.

Goodwin has held talks with regulators about raising capital, the Sunday Telegraph reported, citing people close to the company. It said the bank was set to announce losses of 6 billion pounds.

Goodwin met Hector Sants of the Financial Services Authority in the last two weeks, the newspaper said. Sants has also held similar talks with other British banks, including Barclays Plc and HBOS Plc, it added.

The Telegraph also reported that Royal Bank's offering would raise between 10 billion and 12 billion pounds, making it the biggest by a British company.

Insurance Assets

American International Group Inc., the world's largest insurer by assets; Allianz SE, Europe's biggest insurer; Axa SA and Assicurazioni Generali SpA are interested in buying RBS's insurance division, the Telegraph added. The Sunday Times also said AIG, as well as Warren Buffett's Berkshire Hathaway Inc. may be looking at the bank's assets, and said it may consider selling a 20 percent stake in its insurance arm.

The Sunday Times added that Royal Bank expects the latest writedown to be the last.

The Financial Times reported yesterday that Royal Bank's fresh losses may total 4 billion pounds, while the stock sale would amount to at least 10 billion pounds. It said the offering would be fully underwritten by banks including Merrill Lynch & Co., Goldman Sachs Group Inc. and UBS AG, citing unidentified people familiar with the matter for the report.

Victoria Garrod for Merrill Lynch in London, declined to comment yesterday when contacted by Bloomberg News, as did Dominik von Arx, a London-based UBS spokesman.

Stock Decline

Royal Bank shares have declined 14 percent since the start of this year, compared with a six percent drop in the FTSE All- Share Banks Index over the same period. They rebounded 18 pence, or 4.9 percent, to 384 pence on April 18 amid reports of the planned fundraising, giving it a market value of 38.5 billion pounds.

The bank may sell Direct Line Insurance Plc and Churchill, its sister insurer, to raise as much as 5 billion pounds as part of an effort to boost capital, the London-based Times reported separately yesterday, citing people close to the company.

The bank may also consider selling other holdings including its stakes in Bank of China, Angel Trains Ltd., which leases passenger railway vehicles to train operators, and Citizens Financial Group Inc., the U.S. regional bank, the Times said yesterday.

The bank may also divest National Insurance Guarantee Corp., a commercial lines insurer, for about 1 billion pounds, the Financial Times said.

The bank, which has lost almost half its market value in the past year, has already sold assets such as its European consumer-finance unit and a stake in Southern Water Capital Ltd.

BLOOMBERG