RBS Says U.K. to Buy Majority Stake

By Emily Flynn Vencat

LONDON -- The Royal Bank of Scotland Group (RBS Quote) said Friday the British government will take majority control of the bank -- buying close to a 60% stake -- after its shareholders shunned a stock offering.

RBS, which has indicated it could post its first ever annual loss this year, said investors bought just 0.2% of shares offered to them in a 20 billion pound ($31 billion) government plan to recapitalize the bank. The offer, issued last month, expired on Friday.

Under the terms of the plan, the government agreed to buy any shares not purchased by investors.

As a result, the government is expected to buy nearly all 20 billion pounds worth of shares, with 15 billion pounds going for ordinary shares and 5 billion pounds for preference shares.

This will leave the British Treasury owning 57.9% of the bank, and sitting on an immediate paper loss on its investment of around 5 billion pounds.

The British Treasury was not immediately available for comment.

The deal forms the largest part of the government's wider plan to recapitalize Britain's banks.

Last month, RBS, Lloyds TSB Group and HBOS agreed to sell a combined 37 billion pounds worth of stock to shore up their balance sheets. In all three cases, the government guaranteed to buy any shares not purchased by investors.

Shares in RBS were roughly flat at 55 pence in early trading on the London Stock Exchange, as the market had been widely expecting that the government would be taking a majority stake in the bank.