Royal Bank of Scotland announced a record £12 billion rights issue yesterday to cover a potential £5.9 billion writedown on the value of toxic assets and help rebuild a stretched balance sheet.

RBS said it expects disposals to generate £4 billion in core capital by the end of this year and could sell all or part of its insurance business.

RBS will offer 11 new shares for every 18 existing shares at 200 pence per share in the rights issue, Europe's biggest ever, representing a 46 per cent discount to Monday's closing price.

"It's a reassuring discount, and investors will be pleased that it's such a large amount and not five or six billion - they want RBS to raise some money so that the company can move forward," said Mark Sartori, head of European trading at Fox-Pitt, Kelton.

The bank said it had assumed there will be additional hits to the value of assets, including the ABN wholesale business it bought last year, due to the impact of the US subprime mortgage crisis and subsequent credit crunch. It estimated the effect of writedowns on core capital will be £4.3 billion net of tax, or £5.9 billion before tax.