Goodwin sitting on a loss on his RBS stake

SIR Fred Goodwin has more than doubled his shareholding in Royal Bank of Scotland as part of the £15 billion placing and open offer as he and fellow directors seek to show confidence in the institution's future.

The demonstration of faith by senior executives came as RBS revealed yesterday that the taxpayer has been left with a majority 58 per cent stake in the bank after City investors shunned the government-underwritten rescue.

RBS said its shareholders took just 0.24 per cent, or 55.9 million, of the shares on offer. That is thought to include an aggregate purchase of 4.3 million new shares by the bank's board.

Goodwin is understood to have increased his shareholding to 2,734,851 from 1,146,873 previously.

At last night's closing price of 55.3p that holding is worth £1.5m – a paper loss of just under £162,000 on the new shares he bought at the offer price of 65.5p.

It is thought Goodwin, who is due to leave in the New Year, felt it was right to show solidarity with the rights rescue given his part in the bank's fall from grace, and also felt RBS shares were undervalued in the medium-term.

Chairman Sir Tom McKillop is understood to have increased his holding to 819,086 from 343,488, a holding worth £452,954.

Finance director Guy Whittaker increased his holding to 1,313,174 from 550,686 – worth £726,185.

Gordon Pell, head of the retail banking arm, upped his holding to 611,928 shares from 256,615. Non-executive directors are also understood to have taken up their entitlements.

New chief executive Stephen Hester was granted a £10.4m share award by RBS as compensation for leaving British Land – but the initial tranche only kicked in on November 21 when he took up his new post – making him ineligible for the rights offer on the closing date of 31 October.

Institutional investors shunning the offer left the government with the remaining 22.8 billion shares. That outcome was expected after the RBS share price remained well below the offer price .

Hester said: "We regret that existing shareholders did not take up their pre-emptive rights but understand that market sentiment toward the banking sector made this uneconomic in the short term."

The City believes the government will be left with its stake in RBS, and a potential 43 per cent in any Lloyds/HBOS combination, for years as recession-hit markets struggle to recover.

Simon Willis at NCB Stockbrokers said: "You don't need to be a conspiracy theorist to take the view that RBS is likely to behave much more in the way the government would want it to behave than if the government had a stake of, say, 10 to 15 per cent."

A Treasury spokesman said the government had made it clear it would "not get involved in the day-to-day running of bank".

RBS shares closed up 0.3p at 55.3p, meaning the government is sitting on a paper loss of about £2.3bn.

Spanish banking giant Santander announced a full take-up for its 7.2bn (£5.9bn) rights issue.

WHAT NEXT

MINISTERS will exercise influence on the banks which the government has a stake in through UK Financial Investments.

UKFI is supposed to be at "arm's-length" from ministers and it charged with properly managing the stake the government has in banks.

Its aim is to safeguard the taxpayer's interests in banks which have subscribed to the government's recapitalisation fund, primarily Royal Bank of Scotland and the expected Lloyds/HBOS combination.

On Thursday UKFI hired John Crompton from Merrill Lynch, an experienced equity capital markets banker, to devise and execute a strategy for the eventual sale of the holdings.

UKFI is chaired by Sir Philip Hampton, the chairman of Sainsbury's and a former group finance director at Lloyds.

According to the Treasury, the over-arching objectives of UKFI will be "to protect and create value for the taxpayer as shareholder, with due regard to financial stability and acting in a way that promotes competition".