Court documents allege clashes inside RBS over 2008 toxic assets

Wed Nov 16, 2016 5:26am EST
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By Sinead Cruise and Andrew MacAskill

LONDON (Reuters) - Royal Bank of Scotland bosses avoided repricing billions of dollars of souring investments on the eve of the 2008 financial crisis for fear of endangering bonuses and a takeover bid for a rival, court documents allege.

The claimants' filings allege senior managers were warned by internal risk experts for more than six months that overvalued toxic debt, including subprime mortgage bonds, had left the bank dangerously exposed to a collapse in U.S. property prices.

But some managers resisted the warnings, allege lawyers acting for RBS shareholders now seeking billions of pounds in compensation for losses suffered when the bank was bailed out in the 2008 crisis, according to the claimants' "particulars of claim" and a witness statement seen by Reuters.

In documents filed by lawyers acting for RBS, the bank rejects those allegations, and denies that it should have repriced assets more promptly or that it misled shareholders over its finances.

The allegations, which focus on the months leading up to the 2008 crisis, are at the heart of a 4 billion pound ($5 billion)lawsuit brought by thousands of RBS's investors, which is due to start in the UK early next year. Documents seen by Reuters include the claimants' particulars of claim and the bank's defense.

In the 1990s and 2000s, RBS had gone from being a small Scottish lender to a global banking giant, largely thanks to an aggressive expansion plan led by former chief executives George Mathewson and Fred Goodwin.

In the summer of 2007, the bank stunned markets by leading a consortium of lenders in a 71 billion euro ($77.3 billion) takeover of Dutch bank ABN Amro just as worries about a massive U.S. credit bubble were gathering momentum.

Little more than a year later, RBS became one of the biggest casualties of the turmoil that engulfed the industry. In 2008, the Edinburgh-based bank made a then record 12 billion pound cash call on investors. Just six months later, RBS - Britain's largest corporate lender and home to hundreds of billions of pounds of customer deposits - required the first tranche of a UK government bailout that ended up costing 45.5 billion pounds.   Continued...

A Royal Bank of Scotland branch is seen in London, Britain February 21, 2009.     REUTERS/Luke MacGregor/File Photo