Shareholders in Royal Bank of Scotland have until Wednesday to decide whether they will take part in the bank’s £12 billion rights issue.

Under the terms of the deal, they have been offered 11 new shares for every 18 previously held, at a take-up price of £2 — a 12% discount to the closing price of 228.5p on Friday.

Shares in the bank have plunged 38% since the cash call was announced, at which point investors would have got a 46% discount.

All bank shares have been hammered recently as traders fret about the impact of the downturn in the housing market on their balance sheets. Investors are also worried that the bank will not find any takers for its Churchill and Direct Line insurance arms.

Depending on their view of the stock, investors can either take up their rights, which will mean their stake in the company remains the same, or sell them in the market (or let them lapse), which will dilute their original holding.

Nick Raynor, investment adviser at The Share Centre, a stockbroker, said: “Although we are yet to see the full impact of the ABN Amro purchase, RBS is making the right moves in shoring itself up against longer term uncertainty in the markets. It is set to raise an additional £4 billion by selling off its insurance units, Churchill and Direct Line.

“As such, if investors can afford to take up the rights issue then we would recommend doing so as we still see banks as a good longer term investment. Investors who do not have the extra cash to hand could consider using some of the money paid in the dividend on May 23.”

If you held 1,800 ordinary shares, you would be entitled to 1,100 new shares at £2 each, or £2,200. Alternatively, you could sell your rights at what is known as the “nil paid rights” price. This is the current price minus the call price (£2) — or 28.5p on Friday. So in the above example you would get £313.50.

The final choice would be to sell sufficient of the rights to take up the balance, which is known as a “stubs” transaction. The purpose of this manoeuvre is to take up as many rights as possible without spending any more on the shares — so the holder would sell 932 shares to raise £265.62. With this money they could take up the balance of 168 shares (1,100 minus 932) at £2 each, at a cost of £336 — with no cost incurred. This would be a partial dilution of the holding.

Hargreaves Lansdown has produced a rights issue calculator that can do the sums for you at www.h-l.co.uk/rbs

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