RBS faces a £5bn people’s backlash

Goodwin and directors to be called to court

THE taxpayer-owned Royal Bank of Scotland is about to be hit with a £5 billion compensation claim as its toxic past comes back to haunt it.

In a landmark case that could see the financial giant hit with a crippling bill, RBS will learn later this week how many people are suing in the biggest mass action ever raised in a British court.

Nearly 50,000 investors – including many ordinary families and RBS staff – are claiming they were persuaded to buy shares in the bank in 2008 on the basis of misleading information about its financial health.

They argue that bosses deliberately covered up evidence that the balance sheets of RBS – which soon afterwards nearly collapsed, requiring a massive bail-out by the British taxpayer – were in a dangerous state.

The deadline for aggrieved investors to join the court case is this Friday.

Already, 47,600 individuals and companies have signed up to sue RBS over the issue, with the number expected to rise even further over the coming days.

Last week, the RBoS Shareholders Action Group – one of four groups suing the bank – confirmed it represents 42,800 individual investors, more than three times the 12,500 claims it had submitted by the end of April. Among the combination of individuals and institutions are nearly 5,000 present or former members of RBS Group staff.

An action group spokesman said: ‘There has been a massive surge in investors joining the group in recent weeks.

‘With the deadline for joining now extended to Friday, June 6 – the sixth anniversary of the closing of the rights issue – we believe numbers could still rise substantially over the next five days.’ RBS chief executive Ross McEwan recently insisted the bank believes it has ‘strong defences’ to the claims and will contest them ‘vigorously’.

But a source close to the shareholders’ group, represented by corporate law specialist Bird and Bird, last week said the comments had bewildered those seeking compensation. He disclosed lawyers have indicated that, based on RBS’ defence document submitted in December, the bank looks to be on extremely shaky ground.

Claimants allege that in April 2008 the RBS board, led by chairman Sir Tom McKillop and chief executive Fred Goodwin, asked investors to buy shares worth £12 billion – but misled them by providing an unduly positive image of the bank’s financial health.

They argue that RBS failed to divulge the weakness of its capital position and that its risk management and controls were flawed.

Shares that investors were persuaded to buy for £2 in June 2008 had fallen to 11p seven months later, a 94.5 per cent drop.

The action group is also suing four former RBS directors – Goodwin, McKillop, Johnny Cameron and Guy Whittaker – some of whom are expected to be called as witnesses.

Others firms handling claims include Stewarts Law, which is acting for 313 institutional investors who acquired a total of around 650 million shares, at a cost of £1.32 billion.

Leon Kaye Solicitors is representing around 4,500 shareholders with a claim value of more than £20 million.

Quinn Emanuel has filed claims on behalf of five of the biggest institutions, likely to total £1.2 billion.

A bank spokesman said: ‘While RBS and its former directors made some business decisions that have been criticised, this does not mean that they misled investors or acted illegally.

‘We believe we have strong defences to the claims that are being brought against the group and that is why we intend to defend these vigorously and to protect the interests of our shareholders, including UK taxpayers.’

A trial date is expected soon.

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