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UK's second bank shareholders asked to inject cash

Britain's second largest bank, Royal Bank of Scotland, is to ask shareholders for about £10 billion of extra cash to improve its financial position, reports BBC.

RBS will raise the money from existing investors through by far the biggest rights issue in UK corporate history. The global credit crunch has meant banks worldwide are keen to shore up their capital positions - and it is thought others may follow RBS's move. RBS, owner of NatWest, Ulster Bank and insurer Direct Line, has not commented. In a statement, it would only confirm that it would give a trading update next week as planned. The update is due ahead of its annual meeting on Wednesday. "I understand that next week they will announce a massive rights issue, that's a demand for new cash from their shareholders," said BBC business editor Robert Peston. Analysts stressed that this was not something that should worry people with accounts at any RBS banks. "This is not a customer issue, it's a shareholder issue," said Justin Urquhart Stewart from Seven Investment Management. Heads of many of Britain's biggest banks, including RBS, had a meeting at Downing Street on Tuesday to discuss the continuing effects of the credit crisis. The Bank of England is considering a plan to start accepting UK mortgage-backed securities in return for government bonds in an attempt to get banks lending to each other again, which in turn should ease up lending to individual borrowers. Liberal Democrat treasury spokesman Vince Cable supported the idea of a rights issue in addition to the Bank of England's proposals. "It's positive and it's necessary and it's got to happen for all of the big banks," he told the BBC. "Essentially this is all about sharing pain - shareholders have got to accept that any losses arising from the credit crunch accrue to banks and not to the taxpayer." The government and the Conservatives declined to comment. Analysts expect other banks to follow RBS by going to the market for extra capital. Bradford and Bingley denied widespread reports at the weekend that it was planning to raise money in the same way. Cash reserves at RBS were stretched by its leading role in last year's takeover of the Dutch bank ABN Amro. "Banks have to retain a certain cushion of cash relative to the amount of risk on their balance sheet," said Alex Potter, banking analyst at Collins Stewart. "Having spent the best part of 70 billion Euros (£56bn) last year on the biggest bank in Holland, they now have the smallest cushion relative to risk on their balance sheet of any bank in Europe", he added.