Royal Bank of Scotland in fresh cash plea
Telegraph.co.uk
18 Aprile 2008
Britain's second biggest bank is to make a plea to the City to try to raise billions of pounds to help shore up its finances, which have been hit by the global credit crisis.
The Royal Bank of Scotland, which owns NatWest, is to launch a rights issue for at least £5 billion.
It is the first major British bank to concede that it needs large amounts of extra money and it is expected to trigger a wave of others appealing to shareholders for help.
However, the move, disclosed by City sources to The Daily Telegraph is expected to lead to pressure on Sir Fred Goodwin, one of the City's most respected bankers, who may now face calls from RBS shareholders to step aside as chief executive.
The Financial Services Authority (FSA) is understood to be involved in detailed discussions with the banks over the rights issues and the Treasury is thought to have been made aware of the situation.
RBS, which owns NatWest and has about 30 million customers around the world, has become the latest lender to raise its rates, increasing the cost of its fixed-rate mortgages by up to 0.85 per cent. It now charges an arrangement fee of £999 for all loans and, while two of the deals have been reduced by up to 0.1 per cent, other rates have been increased by between 0.05 per cent and 0.85 per cent.
An RBS spokesman said: "Fixed rate mortgages are available to customers on a rolling basis and are regularly reviewed and updated in line with competitors, as a matter of course.''
RBS declined to comment on its rights issue plan.
News of the bank's plan came after Gordon Brown said lenders must disclose the scale of their debt.
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It followed a warning from an adviser to Prime Minister that house prices could fall by up to 25 per cent over the next two years if mortgage lenders continue to increase their rates following the credit crisis.
In addition, two banks yesterday announced that they would shed 1,300 jobs. UBS said it would lose 900 staff at its City headquarters with Merrill Lynch understood to be axing about 400 staff at its London office.
The new analysis said that if the average mortgage rate rises by one percentage point over the next year, house prices are forecast to fall by a quarter. A half percentage point increase is predicted to lead to a 15 per cent fall in property values.
The warning has been sounded in a study from David Miles, the chief economist at Morgan Stanley, one of the world's largest investment banks.
Mr Miles has been an adviser to the Prime Minister on mortgages and is a non-executive director of the FSA. He was previously an economic adviser at the Bank of England.
The study is the first detailed analysis of the impact that the problems in the mortgage market may have on the housing market. Morgan Stanley predict that up to 10 per cent of loans will be in negative equity - where the property is worth less than the mortgage used to purchase it - within two years.
Over the past few weeks, mortgage lenders have rushed to withdraw schemes from the market and increase rates or fees on popular schemes.
Last weekend, both Mr Brown and Alistair Darling, the Chancellor, called on mortgage lenders to pass to borrowers cuts in the Bank of England base rate.
However, lenders - who are due to meet Mr Darling next week - appear to have snubbed the calls. Halifax, the biggest mortgage lender, increased the rate on its two-year loans by 0.5 percentage points this week.
The Morgan Stanley research will add to pressure on Mr Brown and the Bank of England to finalise details of a proposed rescue package from the Bank to loan money to mortgage lenders.
Under the scheme, they will have access to taxpayer-funded loans by offering their mortgage books as collateral. MS suggests the amount the Bank may have to loan could be enormous.
Source > Telegraph
