RBS crisis talks amid fears of £5bn black hole

ROYAL Bank of Scotland board members were in talks this weekend amid fevered speculation about the bank's plan to raise up to £13bn and the future of senior employees.

Sources close to the bank say the RBS chief executive, Sir Fred Goodwin, was due to meet his chairman, Sir Tom McKillop, and other top-level figures to thrash out the plan, which is likely to involve raising cash from shareholders and possibly the sale of its general insurance companies Direct Line and Churchill.

Goodwin and the rest of the board came under intense pressure on Friday when it emerged the bank plans to raise billions of pounds from its shareholders through a "rights issue", where existing shareholders are offered the opportunity to buy additional shares.

Goodwin and McKillop have been accused of performing a U-turn after they stressed earlier this year that the bank's cash position was sound. Some shareholders have called for one or both to stand down.

As the anger continues this weekend, there is a growing sense among investors that McKillop and Goodwin will have to mount a strong defence of their jobs at the bank's annual general meeting in Edinburgh on Wednesday if they want to remain at the helm of the banking giant.

Paul Mumford, a fund manager at Cavendish Asset Management which owns less than 1% of RBS, said: "There could well be people saying: 'What the hell is going on? We want someone to come in who will drive organic growth.'"

But the situation is likely to be made worse by the fact RBS is set to reveal partial write-offs of assets of between £4bn and £5bn due to the credit crisis.

However, analysts in the City estimate a sale of the insurance companies – which the board views as less critical to the bank's core strategy – could raise up to £5bn.

The plans to raise money are driven by the state of RBS's capital, or cash, position, which is said to be substantially worse than the average for European banks.

Banks have to keep a certain level of capital in reserve in the event of unexpected losses. Their positions are monitored by the Financial Services Authority and it is understood that many of the UK's largest banks have recently come under pressure from the regulator and the Government to increase the amount of cash at their disposal as the deterioration in the economy shows no signs of easing.

RBS's capital position has been affected by its £56bn takeover last October of ABN Amro, the Dutch investment bank, in partnership with Fortis of Belgium and Santander of Spain. The credit crisis has also caused capital reserves to deteriorate as banks have been forced to partially write off billions of pounds in assets.