The Royal Bank of Scotland, England’s second largest bank, unveiled its Rights Issue, to a mixed response. The £12 billion rights issue is the highest ever in England’s history. This capital building exercise was considered a must by RBS after falling prey to the global financial turmoil. The RBS has been forced to make large writedowns on toxic assets, the latest of which is a £5.9 billion pre-tax one in addition to the £2.4 billion one made in February. RBS’s tally sheets have already been stretched to the limit, especially affected by the 71 billion Euros it spent last year, during the takeover of the Dutch bank ABN AMRO.

The rights issue will help the RBS build capital. The issue offers shareholders 11 new shares for every 18 existing shares at a heavily discounted rate of 200 pence per share. This is nearly a 46% discount from the price of the RBS shares on Monday’s closing- which was roughly around 373 pence. The rights issue also marks a radical u-turn in RBS’ policy as they had outright shot down similar proposals on several previous occasions, as late as just two months ago.

The rights issue will be fully underwritten by Merrill Lynch, Goldman Sachs and UBS. The three will be paid £180 million with an additional bonus of £30 million if all goes as scheduled.

In addition to the rights issue, RBS is also contemplating selling off a few of its assets in a bid to raise £6 bllion. It aims to do this by selling its insurance arms such as Churchill and Direct Line and a few others. It has also announced a reduction in dividends, with a decision that it will pay interim dividends in shares rather than in cash. RDS stated that the dividend would be paid in keeping with the 49pc ratio to underlying earnings excluding exceptional terms.

The RBS held its annual general meeting on Wednesday and will have the rights issue Okayed by shareholders in mid-May. The bank believes that the sheer enormity of the Rights Issue should reassure shareholders but it doesn’t seem to be going that way. Shares for RBS have been dropping at the markets and fell 2.5% on Monday itself.

A lot of other banks are expected to follow suit and release rights issues. Most analysts expect Barclays and HBOS to figure prominently on that list. All this will probably depend on the success of RBS’ rights issue. The RBS has 200,000 shareholders, 93% of which are major investors, such as pension funds, while 7% are made up by private individuals.