Talks between Royal Bank of Scotland and a group of “diehard” shareholders suing the lender have collapsed after a bad-tempered summit ended in an impasse that could force the bank’s former boss Fred Goodwin into the dock.
Three directors of the RBoS Shareholder Action Group met chief executive Ross McEwan on Friday morning at the lender’s headquarters on Bishopsgate in the City of London. They are understood to have asked McEwan to improve on his 82p-per-share settlement offer, which would add about £200m to the £700m compensation bill already agreed with a majority of shareholders.
Two people with knowledge of the meeting said discussions became heated, with McEwan accusing the group of turning RBS into the “Millwall of British banking”, believed to be a reference to the south London football club’s public image. Sources close to RBS have categorically denied that McEwan said this.
The claimants were represented at the talks by the lawyers Jonathan Gaunt, Nigel Masters and Lorena Aguirre, who have been assisting former RBS shareholders with their pursuit of the bank. McEwan told the trio that he was not prepared to increase the existing offer, an 11th-hour olive branch offered last month as a 14-week trial loomed.
The opposing legal teams have now exchanged skeleton arguments, indicating that both sides believe the trial now has a good chance of going ahead.
Claimants willing to accept the offer include the pension funds and financial institutions that make up around 80% of the shareholders, who funded a £12bn cash call by RBS in 2008. Trevor Hemmings, the owner of Preston North End football club, who has been funding the “diehard” lawsuit, is another who has accepted RBS’s offer.
RBS only needs to secure approval from shareholders representing 70% of the value of the total claim for the settlement to go ahead, but wanted to get broader agreement to head off further disputes.
Some diehard group members are understood to be angry at a bespoke deal offered to Hemmings by RBS that would make his settlement contingent on ceasing to pay fellow claimants’ legal bills. While they are determined to force Goodwin into court, the defiant group would have to raise their own funds to take the case to trial. They have raised £4m of the £7m required and are confident of securing the remaining funds in time to start the trial on Wednesday next week.
“We will go to the wire,” a source close to this group said. The source added that even an increased offer might not be enough, with some investors unwilling to accept anything less than seeing Goodwin explain his stewardship of the bank.
The case concerns an attempt by RBS in April 2008 to raise £12bn through a rights issue as it tried to raise funds to repair its ailing balance sheet amid a snowballing global banking crisis. The claimants allege that directors, including Goodwin and former chairman Sir Tom McKillop, gave a false impression that the bank could be restored to good health. Some of the claimants, who include 9,000 retail investors, say they were even encouraged by the bank’s bosses to borrow money to buy more shares.
Just a few months later, amid the turmoil triggered by the collapse of Wall Street bank Lehman Brothers, the government launched a taxpayer-funded bailout of the bank that ended up costing £45.5bn. Those who invested in the rights issue at £2 per share saw around 80% of their investment wiped out and the majority of the bank is still owned by the state.
Goodwin, who was stripped of his knighthood in the wake of the bank’s collapse, has never given an account of his conduct, and the trial has been seen as the last chance for a public airing of the bank’s near-collapse. The judge in the ongoing legal dispute, Mr Justice Hildyard, has already adjourned it three times to make time for settlement talks.
Separate groups of investors, representing the majority of initial claimants, have already accepted offers at 41p a share and 43.2p a share, with the bank putting aside £800m last December to resolve claims.
These settlements have cost RBS about £700m so far, meaning it would have to reserve another £100m if the remaining claimants decide to take up the offer rather than pursue their case.
