Cash-hungry RBS to sell Tesco stake to raise Pounds 1bn

Royal Bank of Scotland has agreed to sell its 50 per cent stake in Tesco Personal Finance in a move that will raise 1bn in fresh capital for the cash-hungry bank but is unlikely to satisfy activist investors attempting to organise a boardroom putsch.

Schroders, one of the UK's most prominent investment firms, is understood to be leading a minority of investors who are unsatisfied with the bank's leadership. The fund has approached several top City figures in recent weeks in a search for a replacement for Sir Tom McKillop, the chairman. There are some who would also like to see Sir Fred Goodwin, the chief executive, removed. Schroders declined to comment, as did Royal Bank of Scotland.

The revelations will be damaging for RBS as it launches its 12bn rights issue this week. Investors have until 11 am this Friday to buy the new shares, which will begin trading on the following Monday, 9 June. The cash call is part of a wide-ranging fundraising effort by the bank to fortify a balance sheet that had begun to look increasingly shaky against the backdrop of the credit crunch and slowing economies in its major markets. When the rights issue was announced in April, speculation was rife that with it would come an executive scalp. At a stormy annual meeting in April, however, investors approved the reappointment of Sir Tom. They approved the rights issue the following month

It is highly unlikely Schroders will have any success in forcing Sir Tom out, as the most acute anger seems to have been dissipated after a major investor engagement campaign by Sir Fred and Sir Tom. The fund's effort nonetheless illustrates the smouldering anger of shareholders who are being asked to stump up cash to pay, in large part, for the debt the bank took on to buy ABN Amro at the top of the market.

The rights issue is just one prong of the balance sheet rebuilding. RBS is pruning several businesses that are now considered "non-core". Among these are Angel Trains, the train leasing company, its prized insurance business, which is in the midst of a competitive auction, and now the Tesco venture.

Tesco has agreed to take 100 per cent control of the business, which offers Tesco customers a range of financial products from credit cards to insurance. The companies won't announce the deal until later this month, as contracts covering the operation of back- office functions and the issuing of the products - which RBS will still do - must still be agreed.

Since it was started just over a decade ago, Tesco Personal Finance has been held up as a prime example of the innovative deals that, in headier times, had won plaudits for RBS and its swashbuckling chief executive, Sir Fred.

The bank's cash needs are paramount now, forcing it to unload the business, as well as the coveted 7bn insurance arm, which includes Churchill and Direct Line.

Taken together, and including the expected 3.5bn from the sale of Angel Trains, RBS hopes to raise up to 23bn in total, equivalent to about two-thirds of the company's total market value.

Copyright c 2008 Independent Newspapers UK Limited. All rights owned or operated by The Independent.
Provided by ProQuest Information and Learning Company. All rights Reserved.