By Steve Slater and Clara Ferreira-Marques
LONDON (Reuters) - Royal Bank of Scotland and its combative CEO Fred Goodwin are set to announce Europe's biggest-ever rights issue and over $10 billion of losses on investments this week, taking centre stage during a pivotal few days for UK banks.
As pressure grows on the world's largest lenders to shore up balance sheets battered by the credit crunch, Britain's second-biggest bank will seek to raise up to 12 billion pounds ($24 billion), people familiar with the matter have said.
It is also considering selling assets, including a train leasing business and possibly its insurance arm.
RBS confirmed in a brief statement on Monday it was considering a rights issue. Details could come on Tuesday, a day before its annual investor meeting in Edinburgh, its home city.
At 0741 GMT RBS shares were up 3.65 percent at 398.5 pence, valuing the bank at 40 billion pounds. The shares also rose 5 percent on Friday when the prospect of a big rights issue raised optimism that banks were getting to grips with the credit crisis.
RBS is also expected to unveil a writedown of between 5 billion and 7 billion pounds on tarnished assets, including those previously owned by ABN Amro, the sources said. The bank marked down its assets by 2.4 billon pounds last year.
Goodwin, chief executive for the last decade and the biggest name in Britain's banking sector, met his board on Sunday. They are due to finalize the plans to shore up the balance sheet before discussing them with top shareholders on Monday.
RBS is expected to "kitchen sink" its exposure to bad investments stemming from the U.S. housing crisis and the credit crunch, aware that it needs to tap investors just the once.
The twin rights issue and writedown, however, will build pressure on Goodwin, who left RBS's balance sheet stretched by leading last year's ambitious takeover of Dutch bank ABN.
He said earlier this year there was no need to raise capital, but a sharp deterioration in capital markets has made it difficult to rebuild capital organically.
Some shareholders have said the rights issue should cost Goodwin his job, but supporters say his proven expertise should see him stay in place at least through the current turmoil.
FIRST OF MANY?
Once RBS acts, other British banks -- following in the footsteps of their U.S. rivals -- are likely to consider moves to bolster their balance sheets, which are among the most stretched in Europe. Barclays , HBOS , Alliance & Leicester and Bradford & Bingley will keenly watch the reaction of RBS shareholders.
A bank's capital is its buffer against unexpected losses, safeguarding depositors' funds. UK banks have been more leveraged than rivals so as to take advantage of growth opportunities, but months of turmoil have left many with too thin a cushion.
RBS's tier 1 capital ratio was 4.5 percent at the end of last year, below the UK sector's 5.8 percent average, but it is set to lift that ratio above 6 percent.
Regulators are encouraging banks to rebuild capital, and on Monday the Bank of England will play its part in attempting to unblock the home loan market by announcing details of a plan to swap government bonds for commercial banks' mortgage debt.
RBS is already attempting to sell train-leasing business Angel Trains, and The Times newspaper said that could come as early as Tuesday. Reuters has reported the front-runner to buy the business for over 3 billion pounds is investment firm Babcock & Brown , according to sources with knowledge of the situation, but the deal has been delayed several times by complex tax issues.
RBS could invite offers for its 5 billion pound insurance arm, which includes Direct Line and Churchill brands.
The Sunday Telegraph said insurers AIG , Allianz , Axa and Generali have all made preliminary enquiries to buy the insurance business.
Goldman Sachs , Merrill Lynch and UBS will arrange and underwrite the rights issue, people familiar with the situation have said.
(Editing by Will Waterman)
