Wednesday, Oct 08, 2008

(This item was published Tuesday.) 


 
   By Andrea Tryphonides 
   Of DOW JONES NEWSWIRES

LONDON (Dow Jones)--Shares in the Royal Bank of Scotland Group PLC (RBS) remained under pressure Tuesday, despite confirming that it hasn't approached the U.K. government for cash.

After a morning punctuated by rumors following the massive slump in its share price, RBS said in a one-line statement: "Contrary to press speculation, RBS did not make a request to government for capital."

Danny Clarke, bank analyst at Shore Capital, said: "Visibility is low and confidence needs to be restored across the sector."

He noted the statements from all three banks that had reportedly been in talks with the Treasury overnight. Lloyds TSB PLC (LYG) stated it will look at opportunities to raise capital, while Barclays PLC (BCS) said it had categorically not asked the government for capital.

Commenting on RBS, a London-based trader said: "The statement doesn't mean that it wont apply (for a capital injection)."

Although a meeting between the Treasury and the Big 3 - RBS, Lloyds TSB and Barclays PLC - hasn't been officially confirmed, many observers say it's likely that the government is considering to inject capital by taking up significant stakes in banks.

During early trading, Royal Bank of Scotland slumped to 90 pence, but by 1250 GMT, its shares had recovered marginally and were down 25% to 111 pence. Most of the rest of the U.K. banking sector followed suit, and the FTSE 350 bank sub-sector was down 3.5%.

In other U.K. stocks, Lloyds TSB fell 7.3% to 241.2 pence, HBOS PLC (HBOS.LN) dropped 15% to 136.6 pence and Barclays fell 5.9% to 295.5 pence.

On Monday, RBS dropped 20% after being downgraded to sell from strong buy by Standard & Poor's. S&P said RBS' capital ratios will need to rise further to reestablish confidence but warned this will prove "dilutive" relative to previous valuations.

Bruno Paulson, senior research analyst at Sanford Bernstein, said with reference to a capital injection from the U.K. government: "The situation is very fluid, but it looks like a distinct possibility right now."

Other possibilities are that a European bank could swoop in and make an aggressive bid for the company. RBS' share price this time last year was 476.1 pence, indicating a fall of 76% over the past year. Banco Santander SA (STD), BNP Paribas SA (131110.FR) and HSBC Holdings PLC (HBC) have all been cited as expressing possible interest in further acquisition in the U.K. because of their size, appetite for acquisition and relative low exposure to toxic assets that have plagued other peers.

However, Paulson had his reservations as to whether the vultures are circling for RBS. He said: "It would have to be quite a big vulture and it would have to be fairly brave in these markets. I doubt Santander is big enough."

Santander acquired Alliance & Leicester (AL.LN) and also picked up the retail deposits of Bradford & Bingley (BB.LN), making it a top five player in the U.K. In an overall lower market, Santander was up 2.6% to EUR11.3.

Company Web site: www.rbs.co.uk

-By Andrea Tryphonides, Dow Jones Newswires; 44-0-20 7842 9451; andrea.tryphonides@dowjones.com

(END) Dow Jones Newswires

08-10-08 0433GMT