Royal Bank of Scotland executives on Wednesday defended a 12 billion pound ($23.8 billion) rights issue and told shareholders the "decisive action" left the bank well placed to seize growth opportunities.
Executives at Britain's second-largest lender have come under fire from investors since plans for the record cash call emerged, over what many saw as a radical U-turn for a bank which had long denied a need to shore up its balance sheet.
"The time had come to take decisive action to rebase the capital," Chairman Tom McKillop told shareholders at the annual meeting on Wednesday.
"We're convinced the actions announced yesterday were in the best interests of shareholders." RBS has brushed aside concerns about its top management team but some major shareholders have said McKillop, Chief Executive Fred Goodwin and the board would have to work to keep their backing, calling for a succession plan to be put in place.
"It's a painful decision and an unwelcome decision, but I passionately believe it was the right one," Goodwin said of Tuesday's rights issue.
Asked about the volte-face at the bank, which insisted as late as February there was no need to raise capital, he said events in March were "unprecedented," citing a sharp drop in asset valuations and a deteriorating economic outlook.
Small shareholders at Wednesday's meeting agreed with Goodwin, blaming the economic turmoil that has battered the industry for RBS's woes, with most naming him as the right person to guide the bank through its troubles -- for now.
"Fred has generally done a good job and he's allowed one mistake," Gregan Crawford, a shareholder from Edinburgh said.
"He should be given a year or two to see how it goes."
Safe for Now?
RBS says the biggest-ever rights issue and planned disposals will help rebuild its capital reserves, which have been stretched by its part in last year's takeover of Dutch bank ABN Amro and turmoil in financial markets in recent months.
"'Fred the shred' over-reached himself.
But ABN is different to NatWest, and we should give him another year or two to see if the returns start coming through," Nick Smith, a retired shareholder from outside Glasgow, said.
"We should give him the benefit of the doubt." McKillop said the strengthened position would now leave the bank ready to take advantage of growth opportunities -- even in turbulent markets: "It's often in adversity that competitive advantage is won," he told investors.
McKillop said the bank's priorities for 2008 included delivering on the integration of ABN, taking advantage of ABN's strong position in Asia and maintaining disciplined management of its investment banking arm, long an engine of growth.
Comments published by the bank on Tuesday have prompted mounting concern over a drop in the earnings power of the investment bank arm, Global Banking and Markets (GBM), hit by the credit crunch in key revenue-generating areas.
RBS has denied a strategic shift but has acknowledged repositioning itself as some traditional areas of growth slowed.
Shareholders at rival UBS also met on Wednesday to consider an emergency capital increase, the Swiss bank's second within months as it tries to stabilise after reeling from the subprime crisis.
UBS, one of the top casualties of the credit crunch, has signalled it would cut its investment bank to a rump, no longer using its wealthy client base to bankroll the business and thus effectively cutting its lifeline.