3rd April 2013
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.