Today, barring an eleventh hour settlement, the civil trial brought by claimant shareholders of Royal Bank of Scotland (RBS) against the bank and four of its former senior executives will begin in Court 15 of the Rolls Building. The judge in the case is the Honourable Mr Justice Hildyard.
Who has brought the case?
The claimants are around 9,000 retail shareholders and some 20 institutional investors. The retail investors include numerous RBS staff and pensioners. Among the institutional investors are Wells Fargo, the Boeing pension fund, Bank of America Merrill Lynch and Bank of Ireland. They also include a number of UK local authority pension funds, such as Bedfordshire County Council, Essex, Nottinghamshire and the London Borough of Merton.
The claimants were brought together under the auspices of the RBS Shareholder Action Group, also know as the Signature Litigation Group. Their claim was brought under Section 90 of the Financial Services and Markets Act 2000, a statute designed to make issuers accountable for misleading public markets.
Why are they bringing the case?
The investors allege they were misled about the true state of RBS’s finances when invited to subscribe to the bank’s rights issue in a prospectus on April 30, 2008. They also allege that the bank and its directors had no reasonable belief that the prospectus was accurate.
At the time, the issue was the largest in UK corporate history. It was preceeded by RBS’s disastrous €71bn takeover of Dutch banking giant ABN Amro in late 2007, a deal the bank’s then CEO Fred Goodwin sealed after the credit crunch had already started.
Despite the £12bn rights issue, the bank’s financial position went downhill fast. By October 2008 RBS was no longer able to fund itself. The government was forced to pump £45.5bn of taxpayers' funds into RBS, a bailout which saw it take a massive stake in the bank.
In the process, shareholders lost most of the value of their investments. However, the claimants say that the tone of the prospectus simply suggested the rights issue was a voluntary decision by the bank designed to help RBS take advantage of business opportunities.
What do the claimants want?
They are seeking compensation for the lost value of their investment as well as interest. In total, the claimants are suing RBS for at least £800m, including interest. The precise calculation is for a later trial if the first trial finds in their favour. If the claim succeeds, costs would also be payable by the defendants.
The defendants are RBS itself; Goodwin; former chairman Sir Tom McKillop; ex-head of global banking & markets (investment banking) Johnny Cameron; and former finance director Guy Whittaker.
What does RBS say?
RBS denies it is liable. The bank will argue that it set out accurately and fairly the reasons for the rights issue. The allegation that the prospectus was misleading is denied.
The individual defendants argue that they concluded on the basis of expert advice that the prospectus was accurate, and contained all necessary information to make an informed decision. The defendants will also argue that the allegations made by the claimants are made with the benefit of hindsight and fail to take in to account the volatility and uncertainty in the period leading up to the rights issue.
Why is the case being so closely watched?
Goodwin is due to take the stand and talk about the rights issue under oath. Known as Fred the Shred due to his fondness for cutting costs, Goodwin became so vilified for his actions at the bank during the credit crunch that he was later striped of his knighthood.
Goodwin’s witness box evidence, scheduled for 8 and 9 June will be his first public appearance since 2010, when he was questioned by the House of Commons Treasury Select Committee on RBS’ collapse.
How long will it run for?
Witness evidence is expected to last until mid-July, with closing statements scheduled for October. The purpose of the case is to establish liability. If RBS is held to be liable, a separate trial will be held to establish the size of the financial award.
Haven't there been some settlements with regard to the rights issue case?
Yes. The current claimants represent only a small proportion of all claimants who have at some point sued the bank over the 2008 rights issue. Most have settled including members of the action group itself totalling some 40 per cent of the group by value. Last month, they settled with RBS for 43.2p per share, a rate of 21.6p in the pound.