Beleaguered RBS, Bradford & Bingley prop each other up

RBS's rights issue was a rare ray of hope for the banking sector, with a 95% take-up. But part of the cash raised will be used to prop up the ailing Bradford and Bingley.

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A rare bright spot in the gloom came from a bank, for once. Royal Bank of Scotland's (LON:RBS) £12bn rights issue went down better than expected, with shareholders putting up around 95% of the cash called for in Europe's biggest ever rights issue, leaving underwriters to pick up the tab for the balance, proving that if you're going to hand around the begging bowl, it's best to be at the front of the queue.

But before we get too excited, RBS has confessed it will face "more bad news than good news" for up to 15 months, says chief executive Sir Fred Goodwin. While the Edinburgh-based bank is sticking with its April estimate that this year's credit-related write-downs will be £5.9bn, Goodwin declined to confirm whether analysts' 2008 profit hopes will be met, simply commenting that earnings will be "satisfactory".

Panmure Gordon analyst Sandy Chen rates the shares a "sell", believing that last week's ratings downgrades of US bond insurers MBIA and Ambac and the housing slowdown may lead to "further write-downs".

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Meanwhile, some of RBS's fresh cash will go on bailing out another bank, Bradford & Bingley (LON:BB). Britain's five largest clearing banks are supporting B&B's revised rights issue with a £100m pledge to sub-underwrite part of the £258m placing, potentially leaving each with a 1.63% stake in the buy-to-let lender if existing shareholders don't take up their rights.

So despite David Wighton in The Times questioning whether the "B&B rights issue fiasco" means "farewell to the league of gentlemen" as underwriters can now tear up their promises, this show of support proves that the old banker's club is still alive and kicking.

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