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RBS funds for US expansion

Seeking funds for a US acquisition, Royal Bank of Scotland filled the book for a £2.5 billion equity placing in one day. The money raised will part fund the purchase of US bank Charter One Financial.

Royal Bank of Scotland caused a stir in the equity markets last month when it unveiled plans to purchase Ohio-based retail bank Charter One Financial in a cash deal worth $10.5 billion. This isn?t the first time the Edinburgh-based bank has shown a taste for M&A. Notably, its hostile takeover of UK rival NatWest in 2000 made it the fifth-largest bank in the world by market capitalization.

The acquisition will be made through RBS subsidiary Citizens Financial, and will make it one of the 10 largest commercial bank holding companies in the US. The date of the transaction isn?t set yet but it is expected to be completed in the fourth quarter this year.

On May 4 RBS launched a £2.5 billion ($4.5 billion) equity placing to part finance this 100% cash offer, which was made at $44.20 a share. With about £3 billion a year of excess capital, RBS was in a strong position to finance such a deal and additional funds are expected to be raised through preference shares and internal resources.

The sale was originally meant to be launched through a two-day bookbuild starting on May 4 but it was closed on May 5 because of strong demand.

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