From Tuesday's RNS / PR:

http://www.investors.rbs.com/news/releas...

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Capital Strengthening

We have already made it clear that we expect our results in 2010 and 2011 to continue to be significantly impacted by high impairment levels and rising RWAs from the impact of pro-cyclicality as the effects of the severe downturn experienced during 2008 and 2009 work through the world economy. Our internal projections have not materially changed on this since our half year results although we perceive the risk of a further stressed scenario as currently receding.

We have accordingly agreed to issue £25.5bn of new capital to HM Treasury in the form of B Shares which are convertible, on satisfaction of conditions, into ordinary shares. Subject to obtaining requisite approvals, this capital will be issued in full prior to 31 December 2009. As indicated on 21 September 2009, the Group will continue to consider partial alternatives to this issuance of B Shares to HM Treasury, INCLUDING POTENTIALLY THE ISSUANCE OF ADDITIONAL EQUITY TO NEW AND EXISTING SHAREHOLDERS. A further update will be provided when appropriate.

<emphasis supplied by the undersigned>


The B Shares qualify as Core Tier 1 Capital, reflecting our belief that we need to strengthen our capital base materially. In our base case scenario, this additional capital should enable us to manage the Group's Core Tier 1 ratio at appropriate levels through the anticipated economic cycle, taking account of the diminished capital relief provided by the restructured APS.


The combination of the B Share issuance, Contingent Capital and the revised APS is sized to enable RBS to meet the requirements of the FSA for banks to hold enough capital to maintain a minimum Core Tier 1 capital ratio in excess of 4% even in stressed scenarios in which economic conditions deteriorate well beyond current consensus forecasts. As part of this protection, RBS has received a commitment from HM Treasury to subscribe for up to an additional £8bn of capital in the form of B Shares, exercisable at any time in the next 5 years if its Core Tier 1 ratio falls to 5% or less. We do not presently expect to draw down this facility in our base case scenario. This Contingent Capital complements the protection which RBS receives on the specific APS pool and substitutes for part of the reduction in that cover from the restructured APS.

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Timetable

A shareholder circular will be issued to seek approval from shareholders for RBS's entry into the APS and provide further detail on the terms of the Scheme as well as the agreement reached in principle on State Aid. It is anticipated that this will be circulated by the end of November and a General Meeting will take place during December.

/s/

Warty