British government takes 57.9 per cent stake in RBS

Britain bought a 58 per cent stake in Royal Bank of Scotland yesterday as the state picked up £15 billion of shares in the lender after investors shunned a rescue plan.

It marks the latest attempt by European countries and the US to shore up ailing banks to halt the fallout from a global credit crisis, and adds to UK taxpayers' exposure to the sector after the nationalisation of two smaller lenders earlier in the year.

RBS said its investors took just 0.2 per cent of the shares on offer - including purchases by board members - to leave the government with the remaining 22.8 billion shares.

Take-up was expected to be minimal after RBS shares fell below the 65.5 pence per share offer price.

Evolution Securities analyst Bruce Packard said: "The weekend papers will be full of it, but it didn't surprise anyone in the City.

"It was expected because the share price was trading below the rights price."

Britain is also buying £5 billion of preference shares from RBS, and is set to take big stakes in merger partners Lloyds TSB and HBOS under a £37 billion bailout plan unveiled last month.

UK Financial Investments, the company set up by the government to manage its banking stakes, on Thursday hired John Crompton from Merrill Lynch, an experienced equity capital markets banker, to devise and execute a strategy for the sale of the holdings.

Sales are not expected until markets recover, which could leave the state holding the stakes for several years, analysts said.

RBS chief executive officer Stephen Hester said: "We regret that existing shareholders did not take up their pre-emptive rights but understand that market sentiment towards the banking sector made this uneconomic in the short term.

"We must put the past behind us and move forward with a clear focus on what we need to do next. There remain substantial uncertainties and challenges outside our control but for our part the job is underway."

RBS, once the second-biggest bank in the UK, was left short of capital as a result of hefty write-offs against debt-backed securities. Last year's acquisition of parts of Dutch rival ABN AMRO put further strain on its capital reserves.