RBS slides as push for £10 billion gains pace

Chairman Sir Tom McKillop was today heading one of the most important board meetings in the bank's 281-year history, with most directors taking part by phone.

The board will not only approve the rights issue but also the scale of the writedowns RBS will announce alongside the fund-raising and the likely sale of assets that are considered no longer core to the business.

At the same time, McKillop will commit his support for RBS chief executive Sir Fred Goodwin even if some shareholders argue that his departure will be the price for them supporting the rights issue.

The bank has added UBS to Merrill Lynch and Goldman Sachs as lead underwriters for the share issue, which is expected to be priced at a significant discount to the current share price.

Goodwin and his financial advisers will be in constant contact with shareholders today to assess what level of pricing for the new shares they are prepared to support.

Goodwin will explain that RBS intends to improve its capital reserves significantly through the rights issue and asset sales.

As one adviser put it: "He will explain that the bank is rebasing its capital in order to reflect the new environment for banks."

The move echoes the talks Goodwin has held with Financial Services Authority chief executive Hector Sants, at which it was agreed that more than a short-term fix was needed by the bank.

It is likely RBS will push its target for its core tier one equity ratio - one of the main measures of a bank's strength - from its year-end level of 4.5% to approaching 6%. That would, for the time being, make RBS one of the country's best-capitalised lenders.

That in turn would increase pressure on rivals such as Barclays and HBOS to strengthen their balance sheets. Both have declined to comment on speculation they are considering a rights issue or capital injection from sovereign wealth funds.

RBS will also tomorrow reveal what analysts are already describing as a "kitchen sink" writedown of its exposure to subprime-related investments. The City expects these could total as much as £7 billion, dwarfing the writedowns of £2.4 billion announced for 2007. To repair that damage RBS, is now seriously looking at selling off non-core businesses.

Rolling-stock leasing company Angel Trains is likely to be sold to US private-equity firm Babcock & Brown with financial backing from Deutsche Bank. The deal is unlikely to be finalised until the end of next month but the business is expected to fetch up to £3.5 billion.

Insurance businesses Direct Line and Churchill could also be sold for anything up to £5 billion with potential buyers including AIG, Axa, Allianz and Generali. But RBS will make it clear to its top investors today that it does not feel it is a forced seller of these businesses at knockdown prices.