RBS costs a fortune, but the culprits still hang on

The contrast between the glossy accounts that shareholders approved yesterday and the admission of defeat that is Tuesday's rights issue announcement is breathtaking. Gone are the happy smiley people, the boasts about financial strength, the highlighting of the 10% rise in the dividend.

Not gone, at least not yet, is a single director of RBS, from a group of people who have presided over a catastrophic loss of value for their shareholders. Quite how much the owners of the business have lost by rubber-stamping the takeover of ABN Amro last year has not quite sunk in yet, but the hubris displayed by the bank's failing executives as they announced the issue will surely be followed by nemesis when the shareholders wake up.

There is no evidence of self-doubt at RBS, yet it's clear that the takeover of ABN Amro is as bad a deal as the purchase of NatWest was good all those years ago. The directors, under their supreme leader Sir Fred Goodwin, have committed the cardinal sin of believing their own publicity; after NatWest and (to a lesser extent) the purchase of a stake in Bank of China, they really thought they could always see value where others couldn't.

Goodwin & Co might have thought that the warnings from the Bank of England didn't apply to them, but the audit committee is supposed to pay attention to just this sort of signal. Even more than the executives, it is supposed to ensure that the accounts are not a work of fiction.

Consider the key issue of the dividend; it's only a few weeks since it was raised, covered 2.4 times by "adjusted" earnings. It hasn't even been paid yet, but along with the biggest rights issue the depressed share price could bear comes news that future payments will be lower.

Do not be fooled by the promise of an interim "scrip dividend". It's meaningless, since it simply dilutes the existing capital and ir ritates small shareholders who must cope with penny packets of extra stock. With no hint of contrition, the RBS board points out that the new money will earn rather less than the old, so dividends must be "adjusted" accordingly.

Yet even after this massive rights issue - one stop short of a rescue - RBS is not particularly well-capitalised, nor do the shares look like a bargain. A robust analysis from brokers Collins Stewart concludes that after the issue, the shares at 330p would trade on 1.8 times tangible book value, and eight times this year's likely earnings. If the cash dividend is 20p, the yield is a rather unexciting 6%.

We're told that the major shareholders considered this the right way forward. Why, then, the need for a 36% discount to the pre-rights price, underwritten in case they don't want any more shares? Funds managed by RBS's competitors pick up £240 million for taking the risk that the new shares won't sell, even at 200p on a probable yield of over 10%. Presumably when others tap the markets, a similar bung will come RBS's way. The underwriting list includes UBS, the Swiss bank that was rescued for the second time only last month. This is beyond parody.

It may be that this money really does give RBS the ammunition to continue its quest for world domination, but even if it does, the quest should be undertaken without Goodwin. There is no doubt about who brought the bank to this pretty pass, and after a disaster of these proportions, resignation is the only honourable way out. That there is no obvious successor is another demonstration of a weak board which has allowed a strong chief executive too much power. What a mess.