RBS Raising $23.9B After Mortgage Losses

Royal Bank of Scotland(RBS Quote) on Tuesday said it is raising $23.9 billion in fresh capital to cover its exposure to bad mortgages and is looking for more, after a big first-quarter loss.

The bank said it suffered $11.7 billion in losses tied to U.S. mortgage loans amid the sharp downturn in the nation's housing market. It expects $8.6 billion in further writedowns on mortgage-backed securities, collateralized debt obligations and other assets.

RBS said it will get its new capital infusion by asking shareholders to approve a rights issue that will offer them 11 new shares for every 18 existing shares at $3.98 apiece. American depositary receipts were recently trading down 26 cents, or 3.5%, to $7.23 on the New York Stock Exchange.

"Following the rights issue, RBS believes that it will be in a strong position to realize the substantial value in its U.K. and international franchises and to take advantage of the growth opportunities available to it," RBS said in a press release.

The bank's actions come as other Wall Street firms take similar measures amid mounting losses in the mortgage market. Citigroup (C Quote), Morgan Stanley(MS Quote) and Merrill Lynch(MER Quote) have raised capital from outside investors late last year and early this year. More recently, Washington Mutual(WM Quote), Wachovia(WB Quote) and National City(NCC Quote) announced they would raise money through stock offerings dilutive to existing shareholders.

RBS said it will also cut its insurance business and other smaller assets loose in an effort to reverse its dwindling fortunes.

The bank said it will publish a prospectus of the rights issue in early May, and trading in the new shares is expected to start in June. The rights issue and asset disposals together are expected to bring the core tier 1 capital ratio up to an estimated 6% at the end of June from 4.5% at the end of 2007.

In addition to its troubles in the mortgage market, the firm's new capital raise is also aimed at replacing losses from its recent acquisition of ABN Amro Holdings.

While searches are currently underway for three new nonexecutive directors for the company's board, its current board issued a vote of confidence in management, saying it "will be able to lead RBS through the current challenging conditions, deliver the transaction benefits relating to the acquisition of ABN Amro, and realize the substantial value in RBS's U.K. and international franchises."