April 22 (Bloomberg) -- Royal Bank of Scotland Group Plc, the U.K. lender reeling from asset writedowns, will sell 12 billion pounds ($24 billion) of shares to investors in Europe's largest rights offer and cut the dividend.

RBS fell 3.9 percent in London trading after the company announced 5.9 billion pounds of writedowns for U.S. mortgages, credit-related assets and leveraged loans. Chairman Tom McKillop said the management team led by Chief Executive Officer Fred Goodwin ``has all the ability to steer the bank through this tricky period in financial markets.''

The capital shortage follows by six months the 72 billion- euro ($114 billion) contested takeover of ABN Amro Holding NV with Banco Santander SA and Fortis that occurred at the peak of the bull market. The Edinburgh-based company said the outlook remains ``inevitably clouded'' by market turmoil sparked by the U.S. subprime mortgage market meltdown.

``They have made significant mistakes over recent years,'' said Simon Maughan, an analyst at MF Global Securities Ltd. in London who has a ``neutral'' rating on the second-largest U.K. bank. ``They have overpaid for acquisitions and have had a weak capital base. We would like to see disposals from the global banking and markets portfolio which got them into trouble.''

RBS plans to raise 4 billion pounds in asset sales and would consider selling its insurance unit, which includes the Direct Line and Churchill brands, Goodwin said on a conference call with journalists. The company bought Churchill for 1.1 billion pounds five years ago. It won't sell ``undervalued'' assets in a ``fire sale,'' he said.

`Very High Price'

The Scottish company paid ``a very high price'' for ABN Amro, buying the investment banking and Asian units for 14.3 billion euros ($22.7 billion), McKillop said on the call. ``We increased our exposure to wholesale markets at what has turned out to be an unfortunate time.''

RBS has lost almost half its market value in the past year. It fell 14.5 pence to 358 pence today, valuing it at 35.9 billion pounds. The Bloomberg Europe Banks and Financial Services Index fell 0.9 percent.

The world's biggest financial companies have posted $290 billion in asset writedowns and credit losses in the past year and announced plans to raise $163 billion by selling stakes. The Bank of England yesterday offered to swap bonds for mortgage securities to encourage lenders to pass on interest rate cuts by the central bank and kick-start the frozen home-loan market.

`No One Taking Blame'

Goodwin offered to step down today, Thomson Financial reported, citing an unidentified source familiar with the matter. The board rejected the proposal, according to the report. RBS spokeswoman Carolyn McAdam declined to comment.

``I'm absolutely amazed there are no casualties, there doesn't seem to be anyone who's taking the blame,'' said Colin Morton at Rensburg Fund Management in Leeds, England, who owns RBS shares among 1.6 billion pounds under management. ``A few months ago they were raising the dividend, now they're having the biggest-ever rights issue.''

The bank plans to issue 11 new shares for every 18 existing shares at 200 pence each, or 46 percent below yesterday's close. The offer could dilute existing shareholdings by as much as 38 percent and, according to estimates by Keefe Bruyette & Woods, means RBS may earn 45 pence a share in 2008 instead of 67.9 pence.

The RBS share sale would exceed the $19 billion Fortis raised last October to help pay for its portion of the ABN Amro takeover.

Market, Economic Risk

RBS had its long-term debt rating reduced one step today to AA by Fitch Ratings analysts who cited ``volatility'' at the securities arm, ``challenges'' integrating parts of ABN Amro and ``cyclical weakening'' in earnings prospects. Fitch maintained its stable outlook.

Moody's Investors Service said it may downgrade the B+ financial strength rating and the Aaa senior debt and deposit ratings of Royal Bank of Scotland Plc and the Aa1 senior debt rating of the group. It is also reviewing the U.S. units. Standard & Poor's Ratings Services kept its negative outlook.

To shore up its finances, the company has sold holdings including a stake in Southern Water, cut 200 investment-banking jobs and said today it will shed more people than expected while absorbing ABN Amro.

RBS plans to raise its Tier 1 capital ratio, a measure of capital strength, to more than 8 percent from 7.3 percent and the core equity Tier 1 ratio to more than 6 percent from 4.5 percent by the end of the year, the bank said.

Many Acquisitions

Goodwin, who became CEO in 2000, has been criticized by investors for making acquisitions that weighed on the bank's share price. He bought Cleveland-based Charter One Financial Inc. for $10.3 billion in 2004 and paid 23.6 billion pounds for London-based National Westminster Bank Plc in 2000 in the largest acquisition in British banking history.

The bank has taken calls from potential buyers and is confident it will get a ``very attractive price'' for the insurance unit, Goodwin said on a conference call with analysts.

Today's writedown includes 1.75 billion pounds in bond insurance, 1.9 billion pounds in collateralized debt obligations, 1.4 billion pounds in U.S. mortgages and 1.25 billion pounds in leveraged loans. About a third was accumulated by ABN Amro.

RBS will transfer $1.5 billion of high yield loan risk to a fund to protect it from losses, three people with knowledge of the proposal said yesterday.

`Not Easy for Me'

``I'm 100 percent focused on the future and taking the business forward,'' Goodwin said. ``I can well understand this is not easy for shareholders. It is not easy for me.''

Barclays Plc, Britain's third-biggest bank, may need to shed 6 billion pounds of assets and raise as much as 8 billion pounds in a rights offer, Collins Stewart Plc analyst Alex Potter said yesterday. Hans-Joerg Rudloff, chairman of the securities unit, declined to say in an interview whether the London-based company will consider a share sale. Barclays fell 3.7 percent to 461 pence today.

Bradford & Bingley Plc, the U.K.'s biggest lender to landlords, said today it has a strong capital base. The bank is ``funded into 2009 despite on-going difficulties in the wholesale markets,'' CEO Steven Crawshaw said in a statement.

RBS plans to schedule a special meeting for investors next month to approve the share offer and expects to receive the proceeds the following month, finance director Guy Whittaker said. RBS directors have all subscribed to the sale.

`Worsening Outlook'

The rights offer is underwritten by Goldman Sachs Group Inc., Merrill Lynch & Co. and UBS AG. It will be managed by RBS, Merrill and Goldman. The bank will pay underwriting fees of about 1.75 percent, or 240 million pounds, McAdam said.

The bank decided on the rights offer and insurance unit sale after a ``severe deterioration'' in credit markets in March and a ``worsening outlook for the economy,'' McKillop said. Goodwin had told reporters in February that ``there are no plans for inorganic capital raising or anything of that sort.''

``It represents a significant shift in RBS's position which places more emphasis and more importance on an efficient balance sheet,'' McKillop said. After buying ABN Amro's businesses in October it had planned to increase its core Tier 1 ratio to above 5 percent by 2010.

Searches are underway to recruit three non-executive directors, the company said. They will have experience of the U.K., U.S. and Asia markets respectively, McKillop said.

``Goodwin justifies continued support,'' Standard Life Plc's head of U.K. equities David Cumming said in a statement. ``However, he has to fully engage with his shareholder base and a strengthened non-executive board to maintain that support,'' said Cumming, who holds 3.5 percent of RBS stock.

No `Sacrificial Lamb'

RBS is shrinking the combined assets of its own corporate lending unit and the former ABN Amro securities unit to preserve capital, corporate-lending head Johnny Cameron said on the call.

While some units in its securities division are subdued, operating profit is ``in line'' with analysts' estimates of about 65 pence a share, Whittaker said. The company's customer bad-loan charge has been stable in the first quarter, with U.K. consumer bad debts declining while bad loans in a ``specific U.S. retail portfolio'' rose.

``There is no single individual responsible for these events and looking for a sacrificial lamb just misses the whole point,'' McKillop said at a news conference in London. ``Yes, we did make mistakes. You should be in no doubt about our contrition.''

The bank holds its annual investor meeting in Edinburgh tomorrow afternoon.

To contact the reporter on this story: Ben Livesey in London blivesey@bloomberg.netJon Menon in London jmenon1@bloomberg.net

Last Updated: April 22, 2008 13:41 EDT