The Amazing Ballooning RBS Bailout

Robert Peston/BBC, Saturday afternoon:

I would expect Royal Bank to raise the capital it needs over the weekend. On paper its balance sheet looks okay. But its board has concluded it needs a further cushion of capital, perhaps as much as £10bn.

Robert Peston/BBC, 5:30pm, Sunday afternoon:

In the case of Royal Bank of Scotland, the sum of capital it’s being forced to raise is mindboggling – at least £15bn (and rising).

Financial Times, 6:30pm Sunday afternoon:

Under the plans being discussed, RBS is likely to raise as much as £20bn in fresh capital.

I wonder what this might do for the pound: after all, these shares will be available for purchase to anybody in the world. And as Peston says, this really should shore up RBS and the other British banks once and for all:

With any luck, it will be clear – when the money’s been raised and taxpayers are standing firmly behind them – that they’re safe from collapse.

There are precious few banks in the world about which that can be said with any confidence at all. Which could put RBS and the other British banks in an extremely strong competitive position once the dust has settled.

Any investors who have been pondering buying financials at their current distressed levels will be very tempted indeed by the UK recapitalizations. It’s entirely possible that global interest in these share offerings will be quite high, especially now that the pound has plunged from $2 to $1.70 in the space of less than three months.

RBS raised a record £12 billion in new equity less than six months ago, at a much higher valuation and with a much stronger pound. If that investment made sense, surely this one is a no-brainer.

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