The RBS action group is well within its rights to sue but taxpayers won’t welcome it

3rd April 2013

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The RBS lawsuit has hit the headlines as individual and institutional investors, including pension funds, charities and hedge funds demand around £4bn from RBS in the second action filed against the bank in the last two weeks as the Financial Times reports.

At the heart of their case, is the contention that RBS was not sufficiently clear about its financial position when it raised a £12bn rights in April 2008. The move came in the wake of the Bear Stearns rescue. Before the end of 2008, RBS had to be bailed out by the Government. Shareholders lost a huge amount. It may be the for chief executive Fred Goodwin, chairman Sir Tom  McKillop,  Johnny Cameron, the former head of RBS’s investment bank, and former finance director Guy Whittaker may find themselves on the stand as they are also being sued personally.

The group, the RBoS Action Group is made up of both retail and institutional investors. Last week, a group of 20 investors, led by the Illinois Teachers’ Retirement System pension fund began a similar action.

It appears that various rights issue calls are viewed as a weak spot in the armour of many banks in the run-up to the crisis. While it has proved very difficult to bring actions against banks for the general behaviour – in fact it has even been difficult to bring slightly softer regulatory actions – these cash calls may be different. Whether senior executives did not understand their financial position, falsely stated it, or simply underestimated the contagion to follow, such right issues are now viewed as worthy of challenge.

If you are not an investor, however, what should concern you is first that it is another issue likely to dog the value of the 82 per cent taxpayer owned bank. Like it or not, they are on the wrong side of this suit. It will also distract senior management from turning the bank around as they face a host of other challenges.

The investors are well within their rights to ask legal questions of the banks if they think stock market rules have been breached. But in many ways for everyone else, it is shame this matter couldn’t have come to a head earlier. It is quite likely many people will feel very little pity for the four executives. But they begin to wish that RBS itself could put these issues behind it. And if normal for the UK means four or five properly functioning high street banks we are nowhere near it yet. Not for a long time yet or so it appears.

24 thoughts on “The RBS action group is well within its rights to sue but taxpayers won’t welcome it”

    1. Anonymous says:

      Poor Brummies. Imagine all their kids being able to afford a home, being able to escape perpetual debt. Hellish.

      1. forbin says:

        they need to sell the illusion that Brum is an international city and its safe for Russian Oligarcs

        Forbin

        1. Anonymous says:

          LOL

    2. Anonymous says:

      Hi Dutch

      No it does not as they define it that way. So in the Bank of England numbers.

      Total personal lending= secured lending (mortgages) + consumer credit

      1. dutch says:

        cheers Shaun

  1. dutch says:

    just read that spencer dale quote…..surreal….I presume he won’t be funding personally next time they come asking?

  2. Jimbob says:

    Hi Shaun
    Anecdotally, I don’t know many people in my area (North Kent) who are moving home, or are even financially able to move home. And mortgages don’t seem easy to get either. I don’t understand who is buying these houses.
    And I also just read in the Telegraph that Andy Haldane of BofE is trying to introduce CPIH targeting in lieu of CPI, which as you have pointed out before is actually the lower of the two measures!

    1. Anonymous says:

      Hi Jimbob

      I saw that Telegraph article too, but I did not reply to it as the things the author seemed unaware of was quite a long list!

      Actually I would not be entirely against it because whilst we would start badly if it began today as you point out the cavalry arrive in September. Then via Eurostat will we have a CPIH with house prices in it and as Kipling put it “Ne’er the twain shall meet2….

    2. Anonymous says:

      Thank you so much, Jimbob. I buy the Weekly Telegraph published for overseas markets once in a while, but hadn’t seen that article and likely never would have if it weren’t for you. I can understand why Shaun wouldn’t reply to it since he has so many other things on his plate, but I wish he would just the same. Anyway, I just left a comment on it, which I have the time to read. Andrew Baldwin

  3. Anonymous says:

    Pricedout are as usual wrong on their 60% NEUTRAL.

    It’s good for the boomers who own a single house. Say you want to downsize from 4 bed to 2 bed. If your house is 800K and the 2 bed is 400k you capture 400k from the kidz. If prices halve your unearned wealth transfer is less.

    It’s not just a confidence effect. The kidzs really are being shafted royally by the boomers+ and the banks.

    They are simply backloading all the pain to avoid people realising it’s a pyramid scheme. In a bank run you keep on paying out, the second you stop it’s game over. So now we push more debts on the kids and keep on smiling to the customers at the front of the queue. You even ask them if they want to take out more. No sweaty palms.

    1. Anonymous says:

      Add in the nimbys and the over-restrictive planning laws who want to restrict building. Combine that with the traditional landed aristocracy who’s wealth is dependent on leasehold rentals.

      The system is deliberately undersupplied – to prop up the traditional rent seekers. So there are 2 wealth transfers going on here. Firstly to the aristocracy, which Britain calls it’s tradition. Secondly there is a temporary wealth transfer to the boomers generation – they might blow the lot but they cannot take it with them.

      1. Anonymous says:

        The boomer transfer is on average illusory. Most won’t be able to realise it as by definition on an inverted pyramid not everyone can find a greater fool.

        The permanent transfer is to the establishment / city.

        The sad thing is the establishment look after their own. They wouldn’t bury their own kids alive for a few crumbs that don’t even come to a big reward in the end.

        1. Anonymous says:

          Hi Progrock and ExpatInBG

          Speaking of the UK aristocracy and rentier class I wondered if you had seen this.

          http://www.theguardian.com/business/2014/apr/29/duke-of-westminster-london-housing-bubble

          1. Anonymous says:

            He might as well keep it where it is, he’s for the chop when it kicks off.

          2. Anonymous says:

            Sell high in a rising hot market and only accept profitable offers. It is always hard to predict the timing – but booms historically almost always bust. Once it goes pop, it’s too late to sell, and it’s nice to have spare cash so you can buy cheap ….

            Between the Crimea situation, energy security concerns and the “temporary emergency” ZIRP – the warning lights are flashing. Nobody can tell how long this bubble will continue inflating.

    2. shrimpers says:

      Prog, I am certain we are witnessing manifestation of this in the SE, not just with boomers, but also many who choose to cash in their chips and eliminate any existing mortgage, yet still manage to live in a preferred area with decent sized accommodation – this dilutes, but maintains, the house price inflationary effect outside of the immediate London/satellite area.

      There has to be a catastrophic end to this nonsense eventually – Spencer Dale ought to be arrested btw – the current government policies (and previous administrations of the last 35 years) encourage this insanity merely exacerbating the situation further – the SME figure Shaun pointed out (for which supposedly FLS was introduced) would be hilarious if it weren’t so sad.

      It seems quite incredulous that the tax system is being perpetuated to harness this abuse, whether through the unrevised council/local or land ownership charges, stamp duty, BTL subsidies (& CGT) or the use of Trusts in some LLP structure i.e. off- shore ownership

      This is no way to house a population or offer hope for the younger generation

  4. Chris Rick says:

    I reduced pension payments 15 years ago for various reasons and bought a second home. I run it as a holiday let and have never made a profit. This makes me think that with prices for a similar place now 3 times what I paid there can be few buy-to-let properties bought after me making much of a profit.

    Instead of looking at depressing pension statements each year I have slept in my pension, rodded its drains, painted its walls and dug its garden – in Dorset. Think I got the better deal.

    I am told it is a good investment as I have made a lot of money…but I have not sold it yet so I haven’t made a penny!

    Had I the strength of my convictions and were not owned by so many possessions, rather than the other way round, I would sell both houses and rent somewhere for a year or two then buy somewhere. My problem is deciding what to do with all the cash. I could give it to one of those nice banks to look after for me…

    1. Anonymous says:

      Hi Chris

      I am sure there are some places where letting/renting works on a carry basis (rent is above costs) in general it is the case that the profits are capital ones. Where I live the carry of rent over costs has been poor whenever I have looked (when working abroad again has been a possibility as I was not a home owner when I worked in Tokyo ) and they must be dreadful now.

      Perhaps rather than receiving financial advice you should be giving it!

  5. Anonymous says:

    Great column, Shaun.

    I really can’t see how looking at consumer price inflation would make Nationwide economists believe the surge in house prices is not of concern. I am not a fan of the RPI, but I do like the RPIJ. If you calculate the movement of real housing prices deflating the Nationwide HPI by the RPIJ you get the series below. After showing falling real housing prices until June, from there on the series shows almost continuously accelerating positive rates of change and as of April (I assumed the RPIJ inflation rate for April would be the same as for March) is itself approaching double digits. It is hard to see that these kind of increases are sustainable for very long.

    Nationwide
    RPIJ
    Real

    HPI

    HPI

    Mar-13
    0.8
    2.7
    -1.9

    Apr-13
    0.9
    2.3
    -1.4

    May-13
    1.1
    2.5
    -1.4

    Jun-13
    1.9
    2.7
    -0.8

    Jul-13
    3.9
    2.6
    1.3

    Aug-13
    3.5
    2.6
    0.9

    Sep-13
    5
    2.5
    2.4

    Oct-13
    5.8
    1.9
    3.8

    Nov-13
    6.5
    2
    4.4

    Dec-13
    8.4
    2
    6.3

    Jan-14
    8.8
    2.1
    6.6

    Feb-14
    9.4
    2
    7.3

    Mar-14
    9.5
    1.8
    7.6

    Apr-14
    10.9
    1.8
    8.9

  6. Anonymous says:

    Ask yourself why. Are they mad? No. Utterly stupid? No. What if they feel sure the UK implodes the minute house price inflation ends? Would that explain their behaviour?

    These guys aren’t mad or semi-literate.

  7. Anonymous says:

    Hi Foxy and welcome to my part of the blogosphere.

    This is a type of mission failure as it was to avoid this sort of situation that an “independent” Monetary Policy Committee was set up. Instead we find ourselves which the same result but with extra costs for the Quango created.

  8. forbin says:

    perhaps they are deluded , prog

    or the market isnt free anymore

    the talk of 40 year mortgages was around just before the last bust . Also there was some guy on the BBC ( Charlie? ) who seemed at ease with telling the audience that the kids parent should mortgage their house to help the kids.

    to me this is just another sign that the Banks are still bust

    and that is also the reason there will be no interest rate rise despite me thinking the BOE would love to to damp down wage inflation

    any other kid of inflation is alright by them you see.

    classic economics doesn’t appear to be working- one must wonder why

    Forbin

  9. shrimpers says:

    Shaun, any ideas what the average (median) house price would have been if they had risen in line with, say, RPI, since 1997 (NL election) or even since the Thatcher free for all for finance back circa 1985ish??

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