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Royal Bank of Scotland Issues Bond in Bid to Raise Capital

Wed, 02 Jul 2008

The Royal Bank of Scotland looks set to become the latest bank to take advantage of the Bank of England’s scheme whereby banks can exchange asset backed bonds for government bonds or cash. RBS has issued a £16.7 billion mortgage backed bond as it looks to free up capital and gain some flexibility in a tough financial climate. Experts have commented that the move is extremely cautious, and have indicated a sense of surprise that such a large amount of asset backed bonds is being swapped, as RBS is only Britain’s sixth largest mortgage lender .

The bond has been separated into 16 tranches, with all but one section triple A rated, and the remaining tranche is subordinated debt worth £1.4 billion. Therefore, £15.3 billion of the bank’s bond is eligible to be used as collateral with the central banks, as the Bank of England’s scheme states that mortgage backed and credit card debt can be swapped so long as it is triple A rated.

At the end of 2006, RBS had £67.4 billion of outstanding mortgage balances remaining, giving them a 6.2 per cent share in the market. This is just the latest move by RBS to raise capital, following the sale of their Angel Trains unit for £3.6 billion last month.
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