RBS Opts for Court Battle in £4bn Shareholder Action Group Lawsuit

The Royal Bank of Scotland's chief executive told investors that the bank will go to court to battle a £4bn lawsuit brought by a shareholder action group, over claims the lender did not fully disclose its true financial condition prior to the government bailout.

Following the announcement of RBS's first quarter results for 2014, Ross McEwan said the bank "will defend itself vigorously".

"We understand their issues, but we believe we have strong defences to the claims and that is why we intend to defend these vigorously. That's the reason why these things will be set out in court rather than in an early settlement, we have a good defence on this," said McEwan.

Meanwhile, RBS said in its statement that all regulatory investigations and litigation related to its past conduct has "continued to create challenges and uncertainties for the bank" and therefore it is currently not able to predict how long or how much various cases will cost to settle or compensate.

The Lawsuit

The RBOS Shareholder Action Group filed proceedings in London's High Court in April 2013, against former executives Fred Goodwin, Tom McKillop, Johnny Cameron, and Guy Whittaker and the bank itself, alleging they were sold shares under false pretences.

While the action group is comprised of mainly of retail investors including pensioners and former RBS workers, over 100 institutional investors who lost money in the RBS 2008 rights issue, are part of the collective action.

The group is suing the bank and former executives for apparently misleading shareholders by "misrepresenting the underlying strength of the bank and omitting critical information from the 2008 Rights Issue prospectus".

"This means that RBS will be liable for the losses incurred on shares subscribed in the rights issue, by reason of breaches of Section 90 of the Financial Services and Markets Act 2000," said the group's statement at the time.

In 2008, RBS raised £12bn (€14bn, $20bn) in its rights issue but was soon bailed out by the government, which has led to investors losing over 90% of their money since then.

RBS received a taxpayer funded £45bn bailout in 2008 which eventually led it to be 81% owned by the government.

In response the the shareholder group's claims and statement, it said, at the time, "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."

Developments

Meanwhile, the RBoS Shareholders Action Group said that, due to unprecedented demand, it has extended the deadline for shareholders to join the action against RBS over the 2008 Rights Issue.

The new deadline for institutions is 12 May and for private investors 9 May 2014.

On 28 March 2014, the action group announced that it has secured a £23,500,000 package of After the Event (ATE) insurance and indemnity cover, to protect its members against the possibility of an adverse costs order in its action against RBS.

The group believes this, along with the sheer number of institutions joining the action, is persuading more and more investors to join the action. Should claims be submitted after the deadline dates, shareholders will miss out on the opportunity to gain compensation for their losses.

Over one thousand new private shareholders have joined the action over the past month, bringing the total number in excess of 13,000.