Royal Bank of Scotland (RBS) insisted yesterday that there was no need for sacrificial lambs as it began a blockbuster £12 billion rights issue, the biggest equity capital raising attempted in Britain.

Sir Tom McKillop, the bank’s chairman, said that there was a degree of contrition at the bank, which as recently as two months ago had insisted that its capital position was sound and ruled out a rights issue.

He said that shareholders were wrong to call for the head of Sir Fred Goodwin, the bank’s chief executive. “There is no single individual responsible for all these events. To look for a sacrificial lamb just misses the whole plot.”

However, one leading institutional shareholder said that Sir Fred was probably not the right person to lead the bank in future. “Banks are not supposed to run out of money - this one did and had to be rescued. That is the stark reality of it.”

He was furious that at today’s annual meeting in Edinburgh shareholders are expected to approve a £2.86 million bonus for Sir Fred. “It is too late for us to retract our proxies.”

Another big shareholder said that it was disastrous that Sir Fred was staying on. “Of course he should go. He is a megalomaniac. He got one thing right: NatWest. Everything else he has done has been catastrophic.”

Sir Tom acknowledged the huge size of the sum that he was asking shareholders to raise: twice the record £5.9 billion rights issue from British Telecom in 2001.

“We recognise that this is a big ask of our shareholders, and we ask it with a great degree of humility,” he said.

Sir Fred is understood not to have offered his resignation at any time.

Shareholders are being asked to pay 200p a share for 11 new shares for every 18 they own in a colossal equity issue that will dramatically strengthen RBS’s sickly capital position.

The issue price is at a 46 per cent discount to the closing RBS price on Monday. RBS shares sank 4 per cent to 358p yesterday in anticipation of opportunistic hedge funds shorting the stock in expectation of arbitrage profits.

RBS explained that the U-turn on capital-raising was due to a sudden further deterioration in credit markets in March and its view that the difficulties of the credit crunch would be prolonged.

The bank revealed that it was writing down an additional £5.9 billion because of the deterioration in the mortgage-backed securities market and in leveraged loans.

Disposals would raise a net £4 billion of fresh capital.

It also gave warning that this year’s interim dividend would be paid in shares rather than cash.

The proportion of profits earmarked for dividends would stay the same but given the huge issue of new shares, that implies a dividend cut.

RBS hopes to pay the final dividend of this year in cash.

Two thirds of the writedowns were due to losses in RBS and one third due to losses from assets inherited as a result of the joint acquisition of ABN Amro, the Dutch bank.

The rights issue has been fully underwritten by Merrill Lynch, Goldman Sachs and UBS. The cost of the underwriting would be up to 1.75 per cent of the money raised, or £210 million.

All RBS directors plan to take up their rights in full. Sir Fred will pay £856,000 for his new shares.

Sir Tom defended the RBS board, denying suggestions that it had proved lightweight. “There are no patsies on this board,” he said, adding that it comprised 300 years of financial services experience.

However, three new nonexecutives would be added to the board, one with US experience and one with Asian experience.

One senior City banker described Sir Fred as a “dead man walking” and added: “You cannot say one day that everything is OK, that it is all a storm in a teacup and then announce a £12 billion rescue rights issue the next day."

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