Shares in Royal Bank of Scotland dipped nearly 4 per cent today to extend their slump in the last three days to nearly 10 per cent, partly due to concern there will be a significant rights issue "rump" to sell.
Shares are often volatile when trading "ex-rights" and RBS has suffered from several factors related to the sheer size of its £12 billion ($23.5 billion) fundraising, the biggest ever, and a glum mood surrounding the stock and the UK bank sector, bankers and dealers said.
The rights issue is underwritten by UBS, Goldman Sachs and Merrill Lynch, and they are likely to have to sell a sizeable "rump" of shares on behalf of investors who do not want to take up their rights.
Take up on UK rights issues is typically over 90 per cent, but even that could leave over £1 billion of shares to be placed. That is adding to a view among institutional investors that they will be able to pick up shares cheaper, dealers said.
Shareholders have until June 6th to sign up for the rights, and the rump will be placed shortly after.
There has also been pressure linked to the sale of shares on behalf of American Depository Receipt (ADR) holders as they cannot take up the rights, dealers said.
Other factors hurting the shares include investors selling shares to buy nil-paid shares, and the sale of a minority of shares to pay for the take up of the remainder of them, known as "tail swallowing".
RBS's cashcall is also the biggest of several rights issues for investors to consider. UK peers HBOS and Bradford & Bingley and France's Credit Agricole are all seeking funds and Imperial Tobacco joined them with a £4.9 billion rights issue today.
The broader UK bank sector remains under pressure amid concern about falling profits and the need to bolster capital positions across the sector.
RBS is also attempting to sell its insurance arm, and it could struggle to fetch the £6-8 billion it is seeking amid a worsening economic outlook, analysts said.
By 0841 GMT RBS shares were down 1.4 per cent at 252-1/2 pence, after hitting 247-1/4p, their lowest since April 2000.
Reuters