RBS rejected Goldman, Deloitte warning over 2008 cash call, lawsuit alleges

Thu Nov 17, 2016 6:21am EST
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By Andrew MacAskill and Sinead Cruise

LONDON (Reuters) - Just hours before Royal Bank of Scotland (RBS.L: Quote) launched a massive cash call in 2008 to shore up its capital, the bank's senior advisers were still discussing whether its financial figures were potentially misleading for investors, court documents allege.

Late into the night, adviser Goldman Sachs (GS.N: Quote), auditor Deloitte and a lawyer for RBS exchanged emails discussing the writedowns on troubled assets that RBS was about to publish, according to the "particulars of claim" filed by lawyers acting for shareholders now suing the bank.

Goldman Sachs and Deloitte feared that some figures in the prospectus for the RBS cash call were vulnerable to misinterpretation, according to the particulars of claim. The advisers thought investors might conclude RBS's ability to withstand losses was stronger than it actually was, the claimants' filings, seen by Reuters, allege.

The late-night emails were part of a series of warnings from outside advisers that were rejected by senior RBS executives as the bank sought to raise 12 billion pounds ($15 billion), according to court documents.

RBS denies the allegations that it misled investors. In court documents for the defense seen by Reuters, lawyers for RBS say the valuation figures were reasonable and composed to help the bank decide an appropriate size for its cash call, not to guide investors on losses on the bank's assets.

RBS, Goldman Sachs and Deloitte all declined to comment.

The allegations are part of a 4-billion-pound lawsuit brought by thousands of RBS's investors who bought shares in the 2008 cash call and lost most of their money when the bank nearly collapsed a few months later. RBS had to be rescued by the UK government with a bailout that ended up costing 45.5 billion pounds. British taxpayers still own more than 70 percent of the bank.

The investors are suing for compensation, alleging RBS did not give a proper picture of its finances at the time of the cash call.   Continued...

A woman shelters under an umbrella as she walks past a branch of the Royal Bank of Scotland in the City of London, Britain, September 17, 2013.  REUTERS/Stefan Wermuth/File Photo