- The Washington Times - Saturday, November 29, 2008

LONDON | The British government will take over Royal Bank of Scotland Group PLC with a majority stake of almost 60 percent after the shareholders of the nation’s second-largest bank shunned an emergency share issue.

The $31 billion rescue takeover, the result of a plan announced last month, means that dividends on common shares will be scrapped and top executives’ bonuses will be canceled. Chief Executive Fred Goodwin has resigned, and Chairman Tom McKillop, who last week personally apologized to shareholders for the 85 percent fall in the bank’s share value, has said he will retire next year.

RBS, Britain’s second-largest bank after HSBC, has operations around the world, including Citizens Financial Group, a commercial bank-holding company with headquarters in Providence, R.I., and Greenwich Capital Markets, based in Greenwich, Conn.

Fears about the solvency of RBS intensified this year as the global credit crisis contributed to it writing off $9.2 billion in bad loans. A third of that was a result of last year’s ill-timed acquisition of part of Dutch bank ABN Amro.

The government’s shares will be held by a company called UK Financial Investments Ltd. Its charge is to maximize value for taxpayers and prevent politicians from making business decisions about the bank.

“The investment will be managed at an arm’s length from government,” a spokesman for the Exchequer, or treasury, said.

The bank, which has indicated it could post its first-ever annual loss this year, was forced to resort last month to the British government’s bailout plan, which offered as much as 37 billion pounds to prop up RBS and two other British banks, Lloyds TSB Group PLC and HBOS PLC. In all three cases, the government guaranteed to buy any shares not purchased by investors.

At the government’s request, RBS announced a share issue a month ago at 65.5 pence a share. But because its share price has fallen by almost a quarter since then, investors knew the government, in its role as guarantor of the issue, would end up having to shoulder the full amount when the deadline expired Friday. The result was an immediate $5 billion paper loss for taxpayers.

Only 0.2 percent of the shares were taken up by investors, leaving the state with the balance and boosting its ownership stake to 57.9 percent.

Shares in RBS fell 2.4 percent to 53.7 pence on the London Stock Exchange Friday as investors braced for dividend payments to be cut.

RBS shares traded above 380 pence last December, and above 200 pence as recently as Sept. 26.

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