RBS faces £4bn claim from thousands of small investors

The RBOS Shareholder Action Group claims the directors misled investors, missed out vital information and misrepresented RBS’s underlying strength during the lender’s 2008 rights issue.

Over 1,600 of the 12,000 private shareholders making the claim live in Yorkshire.

They include 335 in Leeds, 190 in Sheffield, 100 in Huddersfield and 100 in Hull, with a further 892 living elsewhere in the county.

The average loss per shareholder in Yorkshire was £3,858.

The action group has launched the proceedings against former chief executive Fred Goodwin, former RBS chairman Tom McKillop, former investment bank boss Johnny Cameron and ex-finance director Guy Whittaker and the bank itself.

A spokesman for the action group said: “Today represents a giant step forward for the many thousands of ordinary people who lost money as the result of inexcusable actions taken by banks and their directors in the financial crisis.

“Now, for the first time, some of these directors will have to answer for their actions in a British court.”

The action group said its claim was lodged with the taxpayer-payer backed bank and in London’s High Court yesterday.

It includes the claims of more than 100 institutional investors who lost money in its 2008 fundraising, as well as thousands of small shareholders, many of whom are pensioners.

RBS launched a £12bn rights issue in 2008 to shore up its balance sheet after its disastrous acquisition of Dutch bank ABN Amro, but just months later it was part-nationalised in a £45bn Government bailout.

The claim is the second in recent days to be lodged against RBS after a group of 21 claimants launched a multi-million pound lawsuit last week, also over its 2008 cash call.

The RBOS Shareholder Action Group claim alleges the bank’s directors “sought to mislead shareholders by misrepresenting the underlying strength of the bank and omitting critical information from the 2008 rights issue prospectus”.

As a result, it argues the 81 per cent state-owned bank is liable for losses sustained by investors who participated in the rights issue, which it claims breached Section 90 of the Financial Services and Markets Act 2000.

RBS declined to comment.

The action group believes the directors of the bank acted improperly by misrepresenting the underlying strength of the bank at the time and by omitting critical information from the prospectus.

It claims this led to thousands of shareholders taking part at an over-inflated price.

It said its members encompass a wide spectrum of investors, ranging from private individuals to large institutional shareholders that many would recognise as household names.

The controversial 2008 cash call followed RBS’s takeover of Dutch bank ABN Amro the previous year, which subsequently brought it to the brink of collapse.

One source close to the action group said: “We have been inundated over the past couple of months with many more individual shareholders joining the legal action.

“The looming deadline for a court case looks like it has had a strong effect.

“We have also seen several other institutions now come forward to join the action. We have good reason to hope that institutional figure may go higher.”

One of the group’s main allegations is that RBS misled investors in the rights issue by quoting an end-2007 tier one capital ratio – the reserves that back its loan book – of 7.3 per cent in the prospectus.

The shareholders say information now available shows the actual capital ratio at the time of the cash call was a weaker 6.2 per cent.

It also claims the prospectus failed to inform investors that RBS was at the time getting £8bn of emergency funding from the US Federal Reserve during the financial crisis, and had held talks with Britain’s Financial Services Authority regarding concerns about its financial strength.

The case has taken many months to reach the brink of getting to court as the action group has had to raise an estimated £20m from insurers and litigation funds to be able to place a bond before the judge. It could then call on it if it loses the lawsuit and has to pay the defendants’ costs.

As well as leading British investors in RBS, the action group has the backing of institutions from Canada, the US and Norway.

Last year US judges found in the bank’s favour regarding two legal actions by holders of RBS preference shares and American Depositary Receipts.

£607m bonus pot for staff

Royal Bank of Scotland revealed bonuses of £607m for staff in 2012 despite plunging deeper into the red with losses of £5.2bn after a “chastening” year.

The losses widened from £1.2bn in 2011 after its £390m settlement for Libor rate fixing, while the bank revealed another £1.1bn in provisions to cover mis-selling claims.

RBS set aside a multi-million pound bonus pool – including £215m for investment bankers – but said it was recouping £302m for its Libor settlement by cutting the 2012 bonus pot.

RBS said it has moved closer to being in a position for the Government to start selling its 82 per cent stake in the bank. It made an operating profit of £3.5bn last year.