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June 2, 2008

RBS anxious to reassure over buy-to-let lending

by Gill Montia

Story link: RBS anxious to reassure over buy-to-let lending

Royal Bank of Scotland (RBS) has acted promptly to distance itself from the circumstances surrounding buy-to-let lender, Bradford & Bingley (B&B).

The bank has issued a statement in which it says that buy-to-let mortgages form only 1% of its UK loan book and that the trading guidance provided in the interim management statement of 22nd April 2008 remains appropriate for the group and for its divisions.

The credit crisis has driven both B&B and RBS to rights issues and this morning B&B’s fundraising efforts were in disarray as its shares fell to an all time low.

The lender reported that its chief executive has left, profits had plummeted and arrears risen.

Texas Pacific Group came to B&B’s rescue by increasing its cash injection into the bank but the events took their toll on shares across the entire UK banking sector.

RBS’ £12 billion rights issue is the largest in UK corporate history and the bank’s response to the trials of B&B reveal its vulnerability over the fundraising.

RBS has seen its share price fall by 25% since April and a further decline sparked by the B&B crisis would impede take up of the rights issue, with disastrous consequences for the group and large amounts of unsold stock remaining with Goldman Sachs, UBS and Merrill Lynch (the investment banks that have underwritten the issue).

RBS has also embarked on a disposal programme and is selling its insurance business (which include Churchill and Direct Line) and Angel Trains, a rolling stock leasing business.


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