updated 4/22/2008 1:03:06 PM ET 2008-04-22T17:03:06

The Royal Bank of Scotland announced the biggest stock sale in British corporate history Tuesday, asking shareholders for $23.9 billion to shore up finances after revealing new and extensive losses from exposure to bad U.S. mortgages.

Analysts believe the offer, a humiliating turn for RBS after last year’s costly buyout of Dutch bank ABN Amro, will likely be followed by similar offers from other major British banks short of cash.

“This is a difficult time for the financial services industry, and it has presented us with specific challenges,” said Chairman Tom McKillop as RBS said it expects further write-downs of 5.9 billion pounds ($11.7 billion) on mortgage-backed securities, collateralized debt obligations and other assets related to a credit crisis that has spread globally from the U.S.

The International Monetary Fund estimates that losses from the credit crunch across the banking sector worldwide could eventually reach $1 trillion.

RBS, Britain’s second-largest bank, follows Citigroup, UBS, Merrill Lynch and JPMorgan Chase in turning to investors for more capital.

“What will be hard for many investors to stomach is that write-downs have been increased so massively compared to those announced just seven weeks ago,” said Charles Stanley analyst Nic Clarke. “This makes management look like they have either been too optimistic or that they are now ’kitchen sinking.”’

Bank of England Governor Mervyn King has said he is “pleased that banks have recognized the need to raise capital,” adding that “we will see more of it in the coming weeks.”

RBS timing may help the bank, analysts said.

“RBS may have lost the element of surprise as the news was well flagged, but will nonetheless benefit from being first to the plate as this announcement will inevitably lead to cash calls from others,” said Richard Hunter, head of UK equities at Hargreaves Lansdown Stockbrokers. “In addition, the depth of the discount on the shares being offered will almost certainly ensure a healthy take-up from existing investors.”

Royal Bank of Scotland Group PLC said it will seek approval for the rights issue from shareholders next month during its annual meeting. Current investors will be offered 11 new shares for every 18 existing shares at 200 pence ($3.98) each.

RBS stock was trading 4 percent lower at 357.5 pence ($7.13) on Tuesday.

RBS reserves have been depleted not only by the global credit squeeze, but also by last year’s acquisition of ABN Amro. RBS led a consortium of other banks in the 70.5-billion euro deal, which was criticized at the time as being too pricey. That was before the bottom fell out of the credit markets.

“You could call it unfortunate,” McKillop said on Tuesday, that the ABN AMRO deal had been done “at a time when bank valuations were much higher than they are now.”

RBS said it believed it would be able to take advantage of growth opportunities after the rights issue. It added that it also intends to dispose of its insurance business and other smaller assets.

“The board unanimously believe that our executive team has all the ability to steer the bank successfully through this tricky period in financial markets,” McKillop said. “This is the time for us to get going and deal with the situation.”

The RBS offering exceeded last year’s rights issue by London-listed Fortis, which issued 13.2 billion euros in new shares to fund its part of the ABN Amro takeover.

Moody’s Investors Services said it may downgrade RBS’ B+ financial strength rating and the Aa1 senior debt rating of the group.

The review “reflects concern about RBS’s exposure to volatile capital markets, as also shown by the magnitude of writedowns on credit market exposures, against the ongoing implementation and execution risk of the ABN Amro acquisition and the heightened uncertainty with regards to the U.K. economy,” Moody’s said.

© 2013 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

Discuss:

Discussion comments

,

Most active discussions

  1. votes comments
  2. votes comments
  3. votes comments
  4. votes comments

Data: Latest rates in the US

Home equity rates View rates in your area
Home equity type Today +/- Chart
$30K HELOC FICO 2.43%
$30K home equity loan FICO 5.80%
$75K home equity loan FICO 4.54%
Credit card rates View more rates
Card type Today +/- Last Week
Low Interest Cards 13.57%
13.57%
Cash Back Cards 17.91%
17.91%
Rewards Cards 17.15%
17.15%
Source: Bankrate.com