Royal Bank of Scotland Issues Preference Shares

Global Finance, Oct 2004

EUROPE

Royal Bank of Scotland, the second-largest bank in the UK, issued $925 million of preference shares in the form of American Depositary Receipts.

A portion of the proceeds may be used to help pay for RBS's acquisition of Cleveland, Ohio-based Charter One Financial, which is expected to close by the fourth quarter of 2004. Proceeds will also be used to strengthen RBS's capital base and for general corporate purposes.

The use of ADRs as an acquisition currency has declined in recent years, although there have been several notable cross-border transactions using this method, including HSBC s purchase of US-based Household International, which was completed in 2003.

RBS's Citizens Financial Group, which is based in Providence, Rhode Island, agreed in May 2004 to acquire Charter One for $10.5 billion.

Citizens Financial will add major markets in six new states as a result of the acquisition, which will boost RBSs US-generated profits to 25% of the total. The United Kingdom's Financial Services Authority confirmed that the newly issued preference shares would qualify as Tier One capital for Royal Bank of Scotland.

The bank issued 37 million Series M dollar-denominated preference shares in the US at a subscription price of $25 per share, with a coupon of 6.4%. The non-voting preference shares were not offered to the public in the UK.

RBS was advised on the issue by Citigroup, which acted as manager along with Merrill Lynch, Morgan Stanley, RBS Greenwich Capital, UBS securities and Wachovia securities.

Various series of preference shares of RBS are traded in the United States through a New York Stock Exchange-listed ADR program with Bank of New York as depositary and paying agent.

The Series M preference shares, which pay quarterly dividends, can be redeemed in whole or in part at any time on or after September 30, 2009.