RBS planning rights issue next week - sources

By Chris Wills and Clara Ferreira-Marques

LONDON (Reuters) - Royal Bank of Scotland is set to raise cash from its shareholders next week, sources close to the matter said, in a move which analysts believe could raise over $20 billion and lead to similar action by other UK banks.

The rights issue, long rumoured in the market, comes as global banking giants from Citigroup (C.N: Quote, Profile, Research) to UBS (UBSN.VX: Quote, Profile, Research) seek to shore up battered balance sheets, but would mark a u-turn for Britain's second-largest bank and the first major fundraising for a UK lender since the start of the credit crunch.

Analysts and shareholders said RBS Chief Executive Fred Goodwin might struggle to survive such a move, as it would underscore how ill-timed his decision was last year to lead a 71-billion-euro ($112 billion) takeover of Dutch bank ABN AMRO.

But they said the cash call, which could be Europe's largest to date, would also raise hopes that banks are getting to grips with a credit crisis which has led them to rein in lending, with painful consequences for the global economy.

"It is right that these major banks should be taking a lead in raising new equity and rebuilding confidence," Richard Lambert, director-general of the Confederation of British Industry said in a speech in Edinburgh, Scotland.

Banks were the best performing sector on Europe's equity markets on Friday, up 3.6 percent. RBS (RBS.L: Quote, Profile, Research) stock, which has underperformed peers by some 10 percent this year, ended up 4.9 percent at 374 pence.

RBS said in a statement on Friday that it noted speculation about "a possible rights issue," but gave no further comment. It is due to publish an update on its trading performance and capital on Wednesday, to coincide with its shareholder meeting.

An industry source, who has direct knowledge of the matter, said the fundraising could coincide with a UK government plan to ease tensions in the mortgage market due as early as next week.