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Jan. 19 (Bloomberg) -- Royal Bank of Scotland Group Plc slumped by the most in two decades in London trading on concern the government may have to take full control of the bank after forecasting the biggest loss ever reported by a U.K. company.

The stock dropped 67 percent, the most since September 1988, to 11.6 pence, paring the Edinburgh-based lender’s market value to 4.6 billion pounds ($6.7 billion).

“Nationalization at zero value is implicit in the price,” said Derek Chambers, an analyst at Standard & Poor’s Equity Research Ltd. who has a “hold” rating on the stock. The stock price “is an option on the vague chance that it doesn’t get nationalized.”

RBS said today it may post a loss of as much as 28 billion pounds this year, surpassing Vodafone Group Plc’s 22 billion- pound net loss in 2006. The government offered to exchange its preference shares in the bank for ordinary stock, a move that could increase its stake to 70 percent from 58 percent. Analysts speculated today the government may eventually take full control of the 282-year-old Scottish lender.

“The market is pricing in the risk of full nationalization for RBS,” said Sandy Chen, an analyst at Panmure Gordon & Co. who has a “sell” rating on the stock. “It’s not an RBS-specific issue. The mixture of deflation and de-leveraging is toxic for bank shares.”

Barclays Plc tumbled 10 percent to 88 pence and Lloyds Banking Group Plc slid 34 percent to 65 pence.

Brown ‘Angry’ at RBS

RBS has been crippled by former Chief Executive Officer Fred Goodwin’s 14.3 billion-euro ($19 billion) acquisition of ABN Amro Holding NV’s investment banking assets three months before the credit crisis began. Goodwin was ousted in October after the government agreed to take control of RBS. Chancellor of the Exchequer Alistair Darling today called the ABN Amro takeover “disastrous” on BBC Radio 4.

“I am angry at the Royal Bank of Scotland and what has happened,” Prime Minister Gordon Brown told reporters in London today. The bank took “irresponsible risks,” in investing in U.S. subprime mortgages and ABN Amro, he said.

The bank may post a full-year loss before exceptional goodwill impairments of as much as 8 billion pounds, Edinburgh- based RBS said in a statement today. In addition, the bank may write down the value of past acquisitions by as much as 20 billion pounds.

‘Truly Horrible’

“The numbers are truly horrible,” said Robert Talbut, who helps manage about $31 billion at Royal London Asset Management. “The government is very clearly in the driving seat, and I would expect RBS to shrink back to being a more U.K.-focused bank.”

RBS said it expects to post 8 billion pounds of credit market writedowns for the full year, boosted by losses on U.S. collateralized debt obligations. Credit impairment losses may total as much as a further 7 billion pounds, including a 1 billion-pound loss on its loan to bankrupt chemical maker Lyondell Chemical Co.

“We can all be sure there will be further significant credit losses, but we can’t be sure of what amount and what timing,” Stephen Hester, who replaced Goodwin as CEO, told reporters on a conference call today. “Significant uncertainties and risks inevitably remain.”

Credit-default swaps on RBS rose 18 basis points to 124 at 4:40 p.m. in London, according to CMA Datavision prices. CDSs are contracts conceived to protect bondholders against default, and pay the buyer face value in exchange for the underlying securities or the cash equivalent should a company fail to adhere to its debt agreements. A rise signals a deterioration in the perception of credit quality.

‘Restructure and Retrench’

RBS issued its statement on the same day that the Bank of England announced measures worth an additional 100 billion pounds to help banks access liquidity and boost lending. The package is on top of the 250 billion pounds Brown pledged in October.

The bank will cut lending in international markets which saw “most of the excess balance sheet expansion” under Goodwin, Hester said today. “We are going to restructure and retrench to our most valuable customer franchise business,” in the U.K.

Darling today rejected calls from lawmakers in his own party to temporarily seize the whole banking industry to get credit flowing to households and companies.

“We have a clear view that British banks are best managed and owned commercially and not by the government,” Darling told Parliament today. “That remains our position.”

Preference Stock

RBS plans to replace the U.K. Treasury’s preference shares, which carry a dividend, with ordinary stock. RBS shareholders will be offered 5 billion pounds of shares for 31.75 pence apiece, the bank said. If shareholders fail to take up their rights, the government’s stake in the bank will increase to 70 percent.

Lloyds, the U.K.’s biggest mortgage lender, said today it would stick with its plan to repay the government’s 4 billion pounds of preference shares by the end of the year. Lloyds may be doing so to avoid following RBS into government control, Simon Willis, an analyst for U.K. financial stocks at NCB Stockbrokers Ltd. in London, said in a telephone interview today.

“They are resisting for as long as they can, but I suspect in due course they will be majority government-owned due to rising bad debts on the back of a deterioration in the U.K. economy,” Willis said.

RBS said today it would use the money saved by eliminating the dividends on the preference stock to boost U.K. lending by 6 billion pounds. Increased lending to U.K. customers will only be on “commercial terms and to creditworthy people,” Hester said.

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