RBS chiefs put up case for the defence

INSTITUTIONAL investors will have no choice but to take up the controversial Royal Bank of Scotland rights issue despite their concerns over the leadership of the bank and its refinancing strategy, bank insiders warned last night.

The confident prediction over the success of the £12 billion refinancing plan came after chairman Sir Tom McKillop and chief executive Sir Fred Goodwin braved the wrath of small shareholders at RBS's annual general meeting yesterday.

McKillop, who bore the brunt of the criticism over everything from executive salaries to the purchase of the Dutch bank, ABN Amro, won re-election to the board with a vote of 98.9 per cent of shareholders.

However, his reappointment, with the support of the bank's major investors, was not being seen as an endorsement of the strategy he and Goodwin have been pursuing.

With the AGM behind them, the pair will now embark on an intensive series of meetings with the big financial institutions who hold more than 90 per cent of the shares in the company.

They will seek to convince sceptical institutional shareholders that the 11-for-18 share offer at 200p per share is the best option to secure their long-term investment.

RBS executives acknowledge that the two will have to work hard to convince the institutions to take up the offer.

However, the view at Gogarburn is understood to be that, despite the complaints from investors over the move – and reports that they want Goodwin to stand down within a year – they will take up the offer by the May deadline

This is said to be because of the substantial discount on the shares and the fact that the rights issue is aimed at addressing the bank's need to rebuild its capital base.

RBS executives have also been angered by the private pressure for them to make the share offer from institutions which in the past have urged them to buy back shares.

One well-placed source said: "There will always be complaints and grumbles and talk of the need for change but in the end these institutions will be forced by reality to take up this offer."

Yesterday's AGM, however, did little to help RBS shares, which were down a further 3.6 per cent to 345p.

Other bank shares also fell yesterday amid continued speculation that others may have to follow in RBS's footsteps.

Goodwin, who has been accused of performing a U-turn over the rights issue, told the AGM that he had only ever said he had "no plans" to make such a move. He said that if he had had such plans and had spoken of them there would have been serious "consequences" for RBS.

Goodwin and McKillop both defended the new strategy, which also included £5.9bn of subprime related write-downs and the possible sale of its insurance arm to raise around £4bn.

Pressed by shareholders yesterday on the change, Goodwin admitted: "It's a painful decision and an unwelcome decision, but I passionately believe it was the right one."

McKillop told the AGM at the EICC in Edinburgh that the bank's priorities for 2008 included delivering on the integration of ABN Amro. That included taking advantage of ABN's strong position in Asia.

He said the strengthened position after the rights issue would now leave the bank ready to take advantage of growth opportunities, even in turbulent markets.



"It's often in adversity that competitive advantage is won," he told investors.