Royal Bank of Scotland faces costly lawsuit

Lawyers for Royal Bank of Scotland sat down last month with representatives of angry shareholders to broker an end to what may end up being the costliest case in British legal history.
Royal Bank of Scotland faces costly lawsuit

They tried to persuade investors to drop claims they were misled into stumping up £12bn (€13.8bn) just a few months before the bank’s bailout in 2008.

But the low-profile gathering came to nought, an outcome that could have huge implications for the recovery at RBS as it risks adding up to £6bn to the lender’s litigation bill, lawyers said.

By early 2008, its bad bets on toxic mortgage debt, increased loan defaults and a highly leveraged takeover spree had left RBS’s balance sheet in desperate need of capital, and management turned to investors for the ill-fated cash call.

More than 35,000 shareholders who took part, including some of Britain’s biggest institutional investors and public pension funds, allege RBS deliberately concealed the extent of its financial woes when it raised the money in April 2008.

The bank succumbed to a £45.5bn bailout just six months later, in October, and has since failed to post an annual profit.

The shares issued in the rights issue have lost nine-tenths of their value, and the investors who bought them now want to be compensated.

At the meeting, RBS offered investors about £700m, according to sources, but the claimants reckon they should get £4bn in damages, plus another £2bn in interest and legal fees.

“They are offering pennies when we are after pounds,” said one lawyer. “We are never going to meet in the middle. So we are now focused on pursuing the actions through the courts.”

The next pre-trial hearing is scheduled for September 8 at the High Court in London.

Over the next few weeks, lawyers on both sides will learn who will be called as witnesses.

Former RBS chief executive Fred Goodwin, who has shouldered the blame for the bank’s rapid demise from national treasure to national disgrace, is likely to be called, dealing another blow to the lender’s efforts to draw a line under its troubled past.

RBS, which is now 70% UK state-owned, has always denied any wrongdoing and said its former bosses did not act illegally. “We continue to strongly defend these claims,” the bank said.

“We have always been clear that the bank is open to exploring an out of court resolution to matters, consistent with our legal obligations.”

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