December 5, 2016 / 8:32 AM / 8 months ago

RBS to pay investors $1 billion in bid to avoid fundraising trial

People stand near a branch of Royal Bank of Scotland (RBS) in London, Britain, November 1, 2013.Luke MacGregor/File Photo

LONDON (Reuters) - Royal Bank of Scotland (RBS.L) has agreed to pay 800 million pounds ($1 billion) in an out-of-court settlement over allegations it misled shareholders during a 12 billion pound fundraising at the height of the financial crisis.

The state-controlled British bank said on Monday it had struck a deal with three parties of institutional investors, who were among five separate claimant groups suing RBS for more than 4 billion pounds for alleged omissions and misstatements.

The bank, which remains more than 70 percent state owned, is now trying to reach an agreement with the two other groups in order to avoid a costly, lengthy and potentially embarrassing trial in a case that is unprecedented in English legal history for its size and complexity.

Investors lost around 80 percent of their money when RBS collapsed just months after the 2008 cash call and was rescued in a more than 45 billion pound government bailout.

Monday's deal includes a settlement with Standard Life, Legal & General, Aviva and Prudential and the Universities Superannuation Scheme (USS), which together bought about 10 percent of the 2008 share issue.Sources familiar with the discussions said the decision to settle for about a fifth of the original demand will avoid the costs and risks of years of trials and appeals as RBS's finances become more constrained by a string of fines and other lawsuits."It would have been nicer to get more. But there is a realization that getting something now has value," one said.RBoS Shareholder Action Group, the largest of the claimant groups representing 27,000 retail investors, said it had only been informed about the settlement at the end of last week and was considering "the issues and implications."John Greenwood - a 74-year-old former civil engineer who says he lost 80 percent of a 300,000 pound nest egg - fears that other small investors in the group may baulk at the costs of proceeding to lengthy trials and possible appeals on their own."RBS has played it quite well," he told Reuters by telephone. "They have split the opposition."Greenwood, who spoke in a personal capacity, believes a settlement for about 41 pence a share when they were priced in the 2008 rights issue at 200 or 230 pence is too low, given accrued interest and costs.

He says that while his own retirement dream of buying a narrowboat and drifting down England's canals with his wife was ended by the RBS investment, many others "have passed away while this has been going on".

SENSE OF RELIEF

RBS is attempting to settle fines and lawsuits related to its alleged misconduct before and during the financial crisis, which have hindered a return to profit and private ownership. Last week, RBS was the biggest failure in the Bank of England's annual stress test, partly because of a mounting legal bill that analysts and lawyers had previously estimated could cost the bank up to $27 billion..Although RBS has set aside an unprecedented amount to cover an out-of-court settlement for a case involving allegations of misrepresentation, the deal is a good one for the bank, according to Ian Gordon, an analyst at Investec. "If it leads to a settlement with all the parties I would characterize that with a sense of relief," he said.

Chief Executive Ross McEwan welcomed it as a sign RBS is drawing a line under its troubled past and said he hoped the remaining groups would accept the offer. RBS shares were up 2.1 percent to 197.4 pence at 1505 GMT.The deal could allow RBS to avoid a trial scheduled for March next year that could force its former executives to relive the darkest period in the bank's almost three-century history.Reuters previously reported that RBS ignored warnings from senior advisers about estimated losses that would be reported in the prospectus for its rights issue in order to portray the bank in a falsely healthy light.The bank also 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 showed.

Additional reporting by Sophie Sassard; Editing by Mark Potter and Alexander Smith

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