RBS to reveal aid package for small firms

RBS to reveal aid package for small firms

ROYAL Bank of Scotland will announce today the first in a series of measures to help small firms and ease the lending log-jam.

The beleaguered bank – whose £15bn share issue is expected to be shunned by investors this week – will say that it has seen the number of clients rise after putting in place a package of support ahead of recent calls to provide more cash for struggling firms.

RBS has given a price promise on overdrafts and will announce today that it will not increase pricing on committed overdrafts from December 1 until at least the end of next year. It also says overdrafts for small businesses will stay in place for a year and are not repayable on demand.

The bank hopes this will give a much-needed shot in the arm to its one million small business customers. It claims the number of clients has risen by 12.5% in recent weeks.

Peter Ibbetson, chairman of small business for RBS, said: "The bank fully recognises that one of the biggest worries facing small businesses is the increase in the cost of borrowing. This move will reassure our customers that the bank is committed to supporting them."

He added that more than a quarter of the UK's small businesses are RBS customers.

But today's announcement is unlikely to sway potential investors ahead of Tuesday's deadline for the new issue of shares to be taken up. The Government will be left owning 58% of the company, according to analysts.

Investors have until 11am on Tuesday to take up £15bn of new ordinary shares under its open offer, underwritten by the Government. The bank's shares closed at 47.7p on Friday, well under the offer price of 65.5p per share.

Last Thursday more than 99% of RBS investors voted in favour of the £20bn Government bail-out which involves the state buying £5bn of preference shares and underwriting £15bn of ordinary shares.

An analyst said: "I expect a very low take-up of RBS shares, with the bank becoming 58% Government-owned. This is the least of (new chief executive] Stephen Hester's worries at the moment. The bank is in for a long haul to get to the bottom of all the impairments.

"But RBS has a good business and once its operational performance has improved, investors will come back and its stock will be in demand."

Despite Barclays being on the receiving end of a backlash from shareholders who are unhappy that investors in Qatar and Abu Dhabi have been offered attractive terms to provide the bank with £5.8bn, its proposals are expected to get the green light tomorrow.

Barclays investors are due to vote on the controversial, and relatively expensive, deal which involves the bank tapping-up Middle Eastern investors for cash, rather than participating in the UK Government bailout scheme.

Last week Legal & General, one of the biggest shareholders in Barclays, reluctantly dropped its opposition to the bank becoming a third-owned by the Middle Eastern investors. Barclays needs to get backing from 75% of shareholders.

Nic Clarke, banking analyst with Charles Stanley, said: "I would expect the deal to go through. It's clear from the very high percentage of votes in favour of Lloyds TSB's and RBS's plans, which surprised me, that shareholders tend to follow the board's direction."

Barclays has argued that remaining independent from the Government will let the bank better control its own destiny.

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