Management control of the Royal Bank of Scotland (RBS) is all set to pass into the hands of the British government as investors took only 0.2 per cent of shares offered in the UK's biggest bank bailout, leaving the government with almost £20 billion ($31 billion) of stock and a majority stake of 57.9 per cent.

The general lack of interest amongst the public was expected as the offer price of 65.5 p was about 10 p higher than the price at which the shares were trading. Existing shareholders agreed to buy almost 56 million shares, which represents just 0.24 per cent of the new shares on offer, at a cost of £36.7 million, making an immediate paper loss of £5.6 million.

''We regret that existing shareholders didn't take up their pre-emptive rights but understand that market sentiment toward the banking sector made this uneconomic in the short term,'' said CEO Stephen Hester in an e-mailed statement.

The share issue by RBS, which owns NatWest, was part of the government's plan to recapitalise banks. Last week, shareholders approved plans to raise £20 billion in fresh capital as part of a state rescue deal for Britain's banking sector.

Under the plan, RBS was to raise £5 billion directly from the British government in return for preference shares. Another £15 billion was to come from ordinary shareholders in a share placing underwritten by the British Treasury, with that provision now coming into force. (See: RBS plans 20 billion pounds share issue to boost capital)

The government's shares will be held by a company called UK Financial Investments Ltd, which is supposed to maximise value for taxpayers and prevent politicians making business decisions about banks. It will be headed by Philip Hampton, chairman of Sainsbury's and former finance director of Lloyds TSB.

RBS shareholders voted to take the government money at a meeting last week. There will be strings attached, with the bank losing freedom in areas such as executive pay and dividend policy.

The offering was RBS's second share sale this year. The bank raised £12.3 billion pounds by selling stock to investors in June at 200 p apiece, more than three times yesterday's market price.

RBS, alongside HBOS and Lloyds TSB which are merging, were bailed out last month after they were hit by the global credit crunch and resulting financial crisis which has savaged markets, banking systems and economies around the world.

RBS, which was Britain's second-biggest bank before it lost 85 per cent of market value this year, may post its first annual loss in 40 years as bad loans increase, the company said earlier this month. The bank has reported more than 7 billion pounds of credit losses this year and probably will take more write-downs in the fourth quarter, Hester said earlier this month.

Hester's predecessor Goodwin used leveraged loans, securities trading and $90 billion of acquisitions to turn RBS into one of the biggest banks in the world during eight years as CEO. His $18.5 billion acquisition of ABN Amro Holding NV last year, part of the world's biggest banking takeover, triggered a third of the bank's first-half writ-downs. (See: RBS consortium claims 95 per cent of ABN AMRO stake)