11th-hour brinkmanship puts RBS legal action in the balance

Comment Martin Flanagan

Some – no doubt including Royal Bank of Scotland, Fred Goodwin and three other former directors – will be relieved if an on-the-doorstep-ofthe-court settlement is reached in the £700 million shareholder legal action being brought against the bank over its £12 billion rights issue just before the financial crash. The latter sent RBS into major losses and taxpayer ownership, as a plume of smoke rose from burning investor wallets when the bank’s shares plunged 90 per cent in value.

Those with fewer refined accomplishments, denied a public bonfire of the vanities, may just be disappointed that the former RBS chief executive, chairman Sir Tom Mckillop, finance director Guy Whittaker and investment banking head Johnny Cameron, are not to be grilled in a colourful civil court action that might throw light on the rollercoaster of the financial crash, and what was going through the players’ heads at the time.

The nightmare seen from within planet banking while the Lehman Bros walls were coming down; were the regulators up to scratch? the role of the politicians etc…

The show may not go on. The High Court granted a 24-hour adjournment when the case was due to open yesterday, after lawyers for the RBOS Shareholders Action Group suggested meaningful progress had been made between the contending parties about a potential settlement.

It is reported RBS has made a settlement proposal to what is the rump of the various shareholder action groups that had made legal claims against the bank, worth about 82p a share. That would be double the 40p-a-share that other claimant groups, including thousands of private investors and hundreds of institutional investors, have already settled at in a case where they claimed RBS misled on its financial strength in the rights issue prospectus after its star-crossed acquisition of a big part of ABN Amro bank. RBS and the directors deny wrongdoing.

It’s a delicate call. You could say investors who settled early might have missed out on richer spoils won by hardline shareholders who stayed the course.

Have RBOS Shareholders Action Group played their cards astutely by keeping the suit alive so that RBS could afford to pay them more because most investors – about 87 per cent of the combined lawsuits – are locked into cheaper settlements?