RBS falls on triple announcement

SHARES in Royal Bank of Scotland tumbled 21p to 153p yesterday after it announced a preference share issue, a profits warning for 1992, and a pounds 418m law suit in the same breath, writes Lisa Vaughan.

By coincidence, RBS announced that it planned to raise dollars 200m ( pounds 106m) through the issue of non-cumulative dollar preference shares just after a former customer began legal proceedings against the bank.

RBS said in its registration with the US Securities and Exchange Commission that it did not expect any improvement in the UK economy in the short term and expected business conditions to remain difficult for the group for at least the rest of 1992.

'Consequently, management believes provisions for loan losses in fiscal 1992 are likely to exceed those experienced in 1991 and this will have an adverse effect on the group's results for the year ending 30 September, 1992,' it said.

Stockbrokers' analysts lifted their estimates for RBS's bad debt provisions for 1992 and downgraded their profits forecasts.

Alison Deuchars of Smith New Court said she expected provisions of pounds 392m for 1992 compared with pounds 351m during 1991. She slashed her profits projection to pounds 57m from pounds 102m.

Kenneth Thomson, finance director, said that RBS's bad debts were entirely in the South-east, and in all sectors. 'We were not involved in the headline-grabbing corporate failures. But the security values don't match our lendings (because property values have declined) and we feel the need to provide for that.'

RBS lends mostly to small and medium-sized businesses and to the personal sector.

Mr Thomson said that RBS was launching the preference share issue to enable the bank to maintain its position as one of the better capitalised banks in the UK. The timing of the launch in US markets was right. 'The resultant strengthening of our capital ratios will be achieved again without recourse to our ordinary shareholders and in a highly cost-effective manner.'

RBS series C non-cumulative dollar preference shares, with a nominal value of one US cent each, will be issued as American depositary receipts in the US at a subscription price of dollars 25 each. The Bank of England has confirmed that the series C shares will qualify as Tier 1 capital.

RBS's pre-tax profits for the half-year to 31 March fell 34 per cent to pounds 48m. Its Tier 1 capital was well above Bank of England guidelines at 6.6 per cent.

The SEC is studying RBS's filing and the bank expects the shares could be issued next week at the earliest. It has applied to the London and New York stock exchanges to list the shares.