April 18 (Bloomberg) -- Royal Bank of Scotland Group Plc, the U.K.'s second-biggest lender, is considering a share sale to shore up capital depleted by credit-related writedowns and its part in the acquisition of ABN Amro Holding NV last year, according to a person with knowledge of the plan.

The bank needs to meet capital-adequacy requirements after about 2.6 billion pounds of markdowns, said the person, who declined to be identified as no decision has been made. The Edinburgh-based company plans to raise as much as 12 billion pounds ($24 billion) in a rights offer, the Daily Telegraph said today. RBS rose 4.9 percent in London trading.

``RBS has taken on hundreds of billions of euros in assets at a time when the banks were looking at shifting down,'' said Peter Hahn, a former managing director at Citigroup Inc. who is now a fellow at the Cass Business School in London ``It bought at the top of the market for a franchise that is slowing down.''

Led by Chief Executive Officer Fred Goodwin, RBS is the most indebted of the biggest U.K. banks after paying about 72 billion euros ($114.5 billion) with Banco Santander SA and Fortis for ABN Amro mostly in cash. Last year's U.S. subprime- mortgage collapse has forced the world's largest financial institutions to write down more than $245 billion in assets and bad loans and to sell stakes to raise $136 billion in capital.

Shares Swing

The bank, which has lost almost half its market value in the past year, has sold assets such as its European consumer- finance unit and a stake in Southern Water Capital Ltd. It traded up 18 pence to 384 pence, giving it a market value of 38.5 billion pounds.

``RBS notes recent speculation about a possible rights issue,'' the bank said in a statement late yesterday. ``RBS confirms that its Interim Management Statement covering trading performance and capital will be made next week.''

RBS has a so-called equity Tier 1 capital ratio of about 4.5 percent, trailing Barclays Plc, the one-time rival suitor for ABN Amro, at about 5.1 percent and Lloyds TSB Group Plc at 7.4 percent, UBS AG analysts estimated April 16. The ratio is bolstered by some ABN Amro assets it has yet to split off. Its target is 5.25 percent.

Spokeswoman Carolyn McAdam declined to comment beyond the statement. Goldman Sachs Group Inc. and Merrill Lynch & Co. would arrange the sale, according to the Telegraph newspaper.

Peers May Follow

``Investors have a choice between a rights issue and growth or no rights issue and no growth,'' said Simon Maughan, a London-based analyst at MF Global Securities Ltd. who rates the stock ``neutral.'' He estimates RBS needs to raise about 12 billion pounds and increase the number of its shares by a third.

A share sale by RBS raises the prospect that more U.K. banks will follow, said Hahn of City University's Cass school. ``They probably all gearing up for a rights issue,'' he said.

``There will be rescue rights issues from a number of U.K. banks,'' said Hahn. ``Most of these guys don't want to be the first out of the pen. The most likely way for a U.K. bank CEO to lose his job is a rights issue.''

Barclays spokesman Alistair Smith in London said today that ``there is no change to our policy in respect of capital.'' The company aims to have an equity capital ratio of 5.25 percent. Lloyds TSB spokesman Leigh Calder said today ``we are well funded and have strong liquidity.''

RBS may need to raise 9.1 billion pounds to bring its capital in line with peers, according to UBS. The bank needs at least 10 billion pounds, according to Collins Stewart analysts and as much as 12 billion pounds, according to Keefe Bruyette & Woods Ltd.

Many Acquisitions

RBS is cutting jobs at its corporate-lending arm, which has been hurt by the slowdown in the leveraged loan market and the collapse in demand for mortgage-backed securities. Sales of high-yield loans, where RBS is Europe's No. 1 arranger, shrank to $6 billion in the first quarter from $130 billion last year, Bloomberg data show.

Goodwin, 49, became CEO in 2000 and has been criticized by shareholders for making too many acquisitions that weighed on the bank's share price. He bought Cleveland-based Charter One Financial Inc. for $10.3 billion in 2004 and London-based National Westminster Bank Plc for 23.6 billion pounds in 2000, the largest acquisition in British banking history.

Shareholders including SVM Asset Management and Royal London Asset Management, which expressed concern about the acquisition of the Dutch bank, questioned whether Goodwin should stay on.

Strategy Questioned

``There will be some place now for succession because the strategy following this fund raising will have to change,'' said SVM managing director Colin Mclean. He oversees about 498,000 RBS shares, according to data compiled by Bloomberg. ``We are coming to end of a number of years where this acquisition-led strategy has run down the capital and derated the shares.''

Goodwin's credibility ``has to be questioned,'' Pali International Ltd. analyst Bruce Packard wrote to clients today. Even so, ``his departure is by no means a given, particularly as there is currently a largest ever merger integration of ABN at the moment, and regulators would not want that to go wrong.''

U.K. banks such as Barclays, the third-biggest bank behind HSBC Holdings Plc and RBS, are scaling back lending amid higher funding costs. Goodwin and other U.K. bank heads met with Prime Minister Gordon Brown earlier this month to seek government funds to help unblock credit markets which threaten to undermine the U.K. housing market.

A rights offer ``could be good news as it would put to bed worries about the balance sheet,'' said Colin Morton at Rensburg Fund Management in Leeds who owns RBS shares among 1.6 billion pounds under management. ``If they struggle to get it away, the market will take a dim view of it.''

Collins Stewart analyst Alex Potter said investors may be tempted by a discount and that the sale could mark a turning point. ``This could well be the low-water mark for RBS this year,'' he said.

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

Last Updated: April 18, 2008 12:38 EDT