RBS rushes to ease fears over buy-to-let loans

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The bank rushed out a statement insisting buy-to-let mortgages "are only 1% of RBS's UK loan portfolio" after seeing B&B, Britain's largest buy-to-let lender, issue a profits warning and redraw its fundraising.

It was seen as a panic move by RBS and highlighted how nervous it is about its rights issue - the largest in British corporate history.

Shares across the banking sector tumbled today, with HBOS down 14%, Alliance & Leicester 8%, Lloyds TSB 5% and Barclays 4%.

RBS shares have fallen by 25% since April and closed at 228½p on Friday night - just 28½p above the 200p offer price. They fell another 8½p to 220p today, raising fresh fears that punters will not take up their rights and leave a large rump of stock with the under-writers.

That would be a disaster for embattled chief executive Sir Fred Goodwin and chairman Sir Tom McKillop, who have faced calls to be dismissed. Schroders is leading a group of institutional investors pushing for a boardroom coup.

RBS is selling assets to raise cash but is struggling to find a buyer for its £7bil-lion Churchill and Direct Line insurance business. Tesco is close to buying the bank's half share of their Tesco Personal Finance joint venture for £1 billion.

The City is also growing impatient waiting for details of the £4 billion HBOS rights issue. Attacks on the RBS hierarchy and Steven Crawshaw's exit from B&B do not bode well for HBOS chief executive Andy Hornby. HBOS shares dived 55p to 345p today.

Justin Urquhart Stewart of Seven Investment Management said: "People will be even more nervous over of these rights issues because they will be looking at the underlying concern about the valuations of the financial services sector."