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RBS cash call looks weak to City analysts

THE CITY yesterday poured cold water on news that Royal Bank of Scotland (RBS) is considering launching a further cash call to limit the government&rsquo;s control over the bank, arguing that the plans are not radical enough to stir shareholders into action.<br /><br />RBS is mulling a rights issue of between &pound;3bn and &pound;5bn as it looks for ways to limit the government&rsquo;s 70 per cent stake in the aftermath of participation in the Asset Protection Scheme (APS), set up to help banks dispose of toxic assets.<br /><br />The government&rsquo;s shareholding could potentially rise to over 84 per cent if RBS goes ahead with paying for the APS as planned, via a &pound;19.5bn &lsquo;B&rsquo; share conversion.<br /><br />But analysts said the proposed rights issue looks weak in comparison to a similar plans put forward by Lloyds Banking Group, which is also considering a capital raising in order reduce its reliance on the APS.<br /><br />&ldquo;Unlike at Lloyds, which has at least considered attempting to replace the APS altogether&hellip; the RBS capital raising would simply replace part of the proposed government stake, rather than reduce or cancel the scheme,&rdquo; said Robert Law, UK banks analyst at Nomura.<br /><br />Simon Maughan, an analyst at MF Global, said: &ldquo;Lloyds has made a deliberate and bold attempt to play hard ball with the government to negotiate scaling back the asset protection scheme. However, RBS does not appear to want to reduce the size of its participation in the APS and there would be no change to core capital ratios, thus Lloyds&rsquo; plans look more ambitious and beneficial to shareholders.&rdquo;<br /><br />RBS, which last year posted a record loss of &pound;24.1bn after its disastrous takeover of Dutch bank ABN Amro, also came under fire yesterday from shareholders who said the proposed rights issue would not be drastic enough to dent the bank&rsquo;s dependence on the state.<br /><br />Roger Lawson, acting chairman of the Royal Bank of Scotland Shareholders Action Group, said: &ldquo;RBS is talking about raising only a small proportion of the costs of the APS independently, so in all honesty it won&rsquo;t make a lot of difference.&rdquo;