British government now controls Citizens' parent

Investors shun sale of Royal Bank of Scotland shares

LONDON - The British government took majority control of the corporate parent of Citizens Financial Group yesterday after investors shunned the Royal Bank of Scotland share sale, paving the way for a larger government role in Britain's banking sector.

Investors signed up to buy 0.24 percent of the shares, which were offered as part of a plan to bolster the bank's capital, and the government, which had underwritten the sale, picked up the rest, leaving it with a 57.9 percent stake in RBS.

The government also agreed to buy a separate block of preferred shares, bringing its investment in RBS to about $31 billion. The investment leaves taxpayers already with a paper loss of more than $3 billion, based on Thursday's closing share price.

RBS was one of three British financial firms that tapped government help to fulfill stricter capital requirements intended to help banks survive the credit crisis. Two others - Lloyds TSB and the mortgage lender HBOS, which have recently agreed to merge - also relied on the government to take up any shares they could not sell.

But some analysts warned that even those stricter capital rules might not guarantee the stability of Britain's banks.

The second-largest bank in New England, Citizens has said it is not affected by its parent's troubles. The Providence-based bank has a relatively high ratio of capital to total assets of 9.29 percent, and said it is positioned to weather the global financial crisis.

Moreover, new RBS chief executive Stephen Hester earlier this month suggested the company would hold onto the Citizens franchise, even as he conducts a thorough review of the Royal's far-flung holdings.