DBRS Comments on Royal Bank of Scotland Placing and Open Offer Results

DBRS has today commented on The Royal Bank of Scotland Group plc’s (RBS or the Company) 28 November 2008 announcement stating that upon the closing of the placing and open offer (the Offer) announced by RBS on 13 October 2008, HM Treasury now owns approximately 57.9 % of the ordinary share capital of RBS.

The ratings reflect the Company’s enhanced capital level. The closing of the Offer adds GBP20 billion of capital, including GBP5 billion preference shares and GBP15 billion of ordinary shares, the vast majority of which have been sold to HM Treasury. This sizeable capital infusion comes in addition to the GBP12 billion of common equity raised earlier this year, through existing shareholders. In light of the current environment and the challenges facing RBS, DBRS views the increased capitalization positively, as the enhanced capital position better enables RBS to absorb the impact of the global economic downturn, while supporting its efforts in reducing risk inherent in its balance sheet.

DBRS views the U.K. government’s underwriting of the Offer and its ultimate purchase of the shares as explicit support of the Company. However, as DBRS considers government support and its majority ownership as temporary, the ratings do not fully reflect HM Treasury’s majority ownership.

DBRS rates The Royal Bank of Scotland Group plc and related entities, including its Senior Debt & Deposits at AA and its Short-Term Notes at R-1 (high). The Royal Bank of Scotland plc is rated AA (high)/R-1 (high). DBRS also rates Citizens Financial Group (CFG) and its two operating bank subsidiaries, RBS Citizens, National Association and Citizens Bank of Pennsylvania, including CFG’s Issuer & Senior Debt at AA and Short-Term Instruments at R-1 (high). The trend on all ratings is Negative, except for The Royal Bank of Scotland plc’s short-term rating, which has a Stable trend.

RBS’s ratings are based on its diverse business model, its overall solid earnings potential, and the enhanced capital position. The actions taken by the U.K. government, which also include the guarantees of certain debt, allow RBS time to adjust its business for the current environment. The Negative trend reflects DBRS’s view that, despite the aforementioned strengths and government actions, the Company does face significant challenges in the current operating environment. Additionally, the Negative trend reflects RBS’s considerable exposure to the capital markets through its Global Markets division, and its large commercial property positions, which exposes the Company to additional losses associated with valuation adjustments. Moreover, the Negative trend reflects DBRS’s concern that the Group’s overall solid franchise is being threatened by the weak operating environment. While the Group has enacted measures to reduce risk and restructure its businesses and balance sheet, earnings are likely to remain volatile for the foreseeable future.

Notes:
All figures are in GBP unless otherwise noted.

The applicable methodology is Analytical Background and Methodology for European Bank Ratings, Second Edition, which can be found on our website under Methodologies.

This is a Corporate (Financial Institutions) rating.