Royal Bank of Scotland said Tuesday it had suffered $11.7 billion in additional losses and was forced to raise $23.9 billion in new capital to cover exposure to toxic U.S. loans.
The bank said it would raise even more capital by asking shareholders to approve a rights issue that will offer them 11 new shares for every 18 existing shares at 200 pence ($3.98) each.
RBS said it expects further write-downs on mortgage-backed securities, collateralized debt obligations and other assets of 4.3 billion pounds ($8.6 billion).
RBS shares fell 3.3 percent to 360.25 pence ($7.17) in morning trading.
The company joins Citigroup, Swiss bank UBS and other major financial institutions that have been forced to write off billions and to seek more money from investors.
"Following the rights issue, RBS believes that it will be in a strong position to realize the substantial value in its UK and international franchises and to take advantage of the growth opportunities available to it," the company said in statement.
RBS said it also intends to rid itself of its insurance business and other smaller assets.
Royal Bank of Scotland Group PLC, Britain's second-largest bank by market capitalization, stretched its reserves last year in leading a consortium including Belgian-Dutch group Fortis and Spain's Banco Santander in the takeover of Dutch giant ABN Amro Holding NV. Then it was hit by the freeze-up of the market in securities based on mortgages.
The bank said it had ramped up its campaign for new money to maintain a Tier 1 capital ratio of between 7.5 percent and 8.5 percent and a core Tier 1 capital ratio in excess of 6 percent.
"This is a difficult time for the financial services industry, and it has presented us with specific challenges. Central to these has been the question of our capital ratios, which have been the focus of much attention, both internal and external, over recent months," said RBS' chairman, Sir Tom McKillop.
"It was the board's declared intention to rebuild our Tier 1 capital to the middle to upper end of our historic range of 7 percent to 8 percent over a three-year period, but in light of the current market environment, this level and timing are considered no longer appropriate," McKillop said.
RBS Group's retail operations in Britain include the Royal Bank of Scotland, Ulster Bank and Natwest.
"We believe credit market exposures have now been adjusted to broadly realistic levels and that future write-downs should be significantly lower," said Robert Sage, analyst at Bear Stearns in London.
Richard Hunter, analyst at Hargreaves Lansdown Stockbrokers, said RBS would benefit from being the first of Britain's big banks to go to its shareholders for a capital injection.
"The depth of the discount on the shares being offered will almost certainly ensure a healthy take-up from existing investors," said Richard Hunter, analyst at Hargreaves Lansdown Stockbrokers.
"The share price has been hemmed down by a number of factors over recent months, not least of which have been the credit crunch fallout and the feeling that it may have paid a very full price for the ABN acquisition," Hunter said.
"Equally, the statement will raise serious questions since the bank has only recently increased its dividend by 10 percent whilst insisting that it had no need to shore up its capital," Hunter said.
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