RBS to relive unpleasant memories as investor lawsuit looms

Mon Aug 22, 2016 11:39am EDT
 
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By Andrew MacAskill and Sinead Cruise

LONDON (Reuters) - At an English country mansion last month, lawyers for Royal Bank of Scotland (RBS) (RBS.L: Quote) sat down with representatives of angry shareholders to broker an end to what may end up being the costliest case in British legal history.The meeting at The Grove, an 18-century estate near London that served as the secret World War Two HQ for Britain's biggest railway company, was convened to persuade investors to drop claims they were misled into stumping up 12 billion pounds ($16 billion) 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 Royal Bank of Scotland's recovery as it risks adding up to 6 billion pounds to the lender's litigation bill, lawyers said.

Once a small Scottish retail bank, RBS staged a meteoric rise to global prominence over two decades with an aggressive expansion that threatened to topple the UK financial system.

By early 2008, 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 45.5 billion pound 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 at The Grove, RBS offered investors about 700 million pounds, according to two sources present, but the claimants reckon they should get 4 billion pounds in damages, plus another 2 billion in interest and legal fees.

"They are offering pennies when we are after pounds," said one lawyer, who asked not to be named because the talks are confidential. "We are never going to meet in the middle. So we are now focused on pursuing the actions through the courts."

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A man walks past a branch of The Royal Bank of Scotland (RBS) in central London, Britain August 27, 2014. REUTERS/Toby Melville/Files