LONDON — Royal Bank of Scotland Group PLC Thursday announced a drastic restructuring and another capital increase after posting the U.K.'s largest-ever corporate loss due to a writedown of ABN Amro assets.

The Edinburgh-based bank, whose market capitalization has dropped over 90% in the past 12 months, is bundling 20% of its total assets, or GBP240 billion, into a non-core unit with a view to run down or dispose of them in the next three to five years. In this process, it will significantly reduce or sell its representation in 36 of the 54 countries in which it operates.

It is also raising up to GBP25 billion in new capital by issuing B-shares to the government under a scheme to insure GBP325 billion of its assets against further losses under the U.K. asset protection scheme.

Collins Stewart's Alex Potter said the volume of assets insured is greater than had been expected, reducing risk-weighted assets and lifting the core Tier 1 ratio, or equity held against risky assets, "which is clearly a positive."

At 0907 GMT, RBS shares were up 6.4 pence, or 28%, at 29.5 pence, pulling up other U.K. banks, including Lloyds Banking Group PLC, widely expected to also participate in the asset protection scheme, and Barclays PLC. Lloyds was up 23% and Barclays 11%.

"Whilst the APS appears well-conceived and cheaper than expected, combined with a rights issue at a premium, sadly RBS' operating trends are awful," Potter said. "It is clear that, nearing the end of the write-down cycle (we hope) the real economy recession will materially damage bank earnings from here." Potter has a hold rating on RBS with the target price under review.

Chief Executive Stephen Hester said the industry will see erosion of underlying income levels as a result of weaker business activity and low interest rates squeezing savings margins, while credit costs rise, probably sharply. "We hope that markets will be less disrupted than in 2008, with lower associated write-downs, but time will tell," he added.

The restructuring comes after RBS in 2008 fell into a net loss attributable to shareholders of GBP24.05 billion, after a profit of GBP6.82 billion in 2007, largely because of write-downs on its acquisition of ABN Amro in October 2007 and on credit investments. Analysts had expected a net loss of GBP25.64 billion.

The results are proforma, comprising only ABN assets that are part of RBS. As consortium leader in the ABN buy, RBS also holds Fortis and Banco Santander SA's ABN assets on its balance sheet. Including these, net loss attributable to RBS shareholders was GBP24.14 billion.

Net interest income in 2008 rose 29% to GBP15.94 billion. Analysts forecast GBP14.87 billion.

As the credit crisis triggered a recession in RBS' core markets, the bank was also hit by rising impairments on its loan book, as customers holding 0.91% of all loans and advances failed to honor payment obligations.

RBS is radically restructuring its global banking and markets operations, taking out 45% of all capital employed; cutting more than GBP2.5 billion in costs in its core, continuing operations by 2011; and focusing on the U.K. with smaller global operations.

The assets to be disposed contributed GBP3.9 billion in income in 2008, but were also responsible for GBP1.1 billion in expenses, GBP3.2 billion in impairments and GBP9.2 billion in write-downs.

RBS hopes to eventually shake off majority government ownership, but after announcing an additional capital increase in conjunction with the asset insurance scheme, Hester couldn't specify what the government's stake in the bank will be.

"The government's voting rights won't exceed 75%, but their economic interest rises significantly depending on whether we draw down the full amount, what losses are made on assets, what happens to book value and whether the government convert (the B-shares) into ordinary shares," Hester said.

Under the APS, the bank will bear the first loss amount on the assets up to GBP19.5 billion, after taking into account historic impairments and write-downs.

Losses arising after Jan. 1, 2009, and after the first loss amount of GBP19.5 billion, will be borne 90% by the Treasury and 10% by RBS.

Lloyds later said it is in discussions with the Treasury about participating in the APS but that no terms have been agreed.

"There can be no certainty that Lloyds' participation would be on the same terms as those announced by RBS," it said, adding that it will provide an update when it releases full-year results Friday.

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