banking

RBS shareholders sue for $6B on 2008 rights offering

BLOOMBERG FILE PHOTO/CHRIS RATCLIFFE
ROUGHLY 12,000 shareholders from the Royal Bank of Scotland Group Plc have sued the bank and former CEO Fred Goodwin, claiming they were misled regarding the 2008 rights offering.
Posted 4/3/13

LONDON - Royal Bank of Scotland Group Plc and former CEO Fred Goodwin were sued by about 12,000 shareholders who said the lender misled them in 2008 when it issued new shares months before a government bailout.

The investors may seek as much as 4 billion pounds ($6 billion) in the class-action suit filed in London, the RBOS Shareholder Action Group said today in a statement. It’s the second complaint in less than a week over the rights issue after pension funds and investment firms sued on March 28.

RBS is 81 percent owned by British taxpayers after getting the world’s biggest bank bailout -- 45.5 billion pounds -- in 2008 and 2009 at the height of the global financial crisis. The lender had raised 12 billion pounds from investors in the share sale before collapsing under the weight of bad loans.

“This is one of the largest shareholder actions we have seen brought against the U.K. banks,” said Simon Hart, a London-based trial lawyer specializing in financial disputes who isn’t involved in the suit. The RBS lawsuits are “borne directly out of the unprecedented upheavals in the banking industry in 2008.”

McKillop, Cameron

Former RBS Chairman Tom McKillop, ex-head of corporate markets Johnny Cameron and former finance director Guy Whittaker were also named in the suit filed today in London.

David Gaffney, a spokesman for Edinburgh-based RBS, declined to comment and Cameron declined to comment.

New Century Media, a public relations firm that used to represent Goodwin, said it no longer worked for him and wasn’t able to provide details for his current spokesman. Evolva SA, a Swiss company where McKillop is chairman, declined to provide contact details. An RBS spokesman said the bank didn’t have contact details for Whittaker. Numbers for the men couldn’t be located on directory assistance.

RBS in February posted a 5.97 billion-pound loss after what Chief Executive Officer Stephen Hester said was a “chastening year” in 2012. The lender was fined $612 million in February for rigging benchmark interest rates such as Libor and has set aside more than 2 billion pounds to compensate customers wrongly sold so-called PPI loan insurance.

FSA report

The U.K. Financial Services Authority in 2011 cleared Goodwin and other directors of wrongdoing over the near-collapse of RBS. It acknowledged that regulators had been too lenient in not challenging Goodwin’s “dominant” management style.

The lead plaintiff in the case, John Greenwood, spent about 65,000 pounds investing in the 2008 share offering at 200 pence a share, the shareholder group said in a court filing. He sold the stock later at 68 pence and 37 pence, losing about 70 percent of his investment. Among the other 12,000 claimants are retirees and 100 institutional investors.

RBS didn’t give an accurate account of its capital strength, holdings of packaged debt securities, and the damage caused by its 2007 takeover of ABN Amro Holding NV, according to the lawsuit.

“Directors sought to mislead shareholders by misrepresenting the underlying strength of the bank and omitting critical information from the 2008 rights issue prospectus,” said Locksley Ryan, the shareholder group’s spokesman.

A similar class action brought by pension funds against RBS in New York was dismissed in 2011 when U.S. Judge Deborah Batts ruled the court wasn’t the correct forum for the dispute. The investors said they were misled about the risk from subprime debt and the ABN Amro Bank NV acquisition.

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