Rights issue worries hit RBS shares again

LONDON (Reuters) - Royal Bank of Scotland (RBS.L) stock fell as much as 6 percent on Thursday, extending days of losses to touch an eight-year low, as the shares were hit by fresh concerns over its 12 billion pound cash call.

Shares are often volatile when trading just ahead of a rights issue -- "ex rights" -- and RBS has been hit by the sheer size of its fundraising, the biggest ever, and by continued negative sentiment around the banking sector.

The rights issue is underwritten by UBS, Goldman Sachs and Merrill Lynch, but as the shares near a 200p underwriting price, traders cited growing concern over the size of the "rump" the banks will have to sell on behalf of investors who do not wish to take up their rights.

Shareholders have until June 6 to sign up for the rights, and the rump will be placed soon after.

Other banks planning rights issues -- HBOS HBOS.L and Bradford & Bingley BB.L -- have also been hit by similar concerns and have seen heavy short-selling.

"Talk of rights issue indigestion," said one trader. "If this rights issue is a disappointment, the share price of RBS would surely tank. Existing shareholders would be taking a huge risk not supporting it."

At 4 p.m., RBS shares were down 1.4 percent at 234.75 pence per share, having clawed back some of the earlier losses, while peers HBOS HBOS.L and Bradford & Bingley BB.L, which have both recently announced rights issues, lost 3.5 percent and 6.7 percent respectively.

Volume in RBS shares was hefty, with roughly 250 times the 90-day full day average having changed hands by 4 p.m..

Traders also cited on Thursday concerns over RBS's planned sale of its insurance unit, the country's largest provider of motor cover, after a first deadline for informal offers was extended.