Now we know: Royal Bank of Scotland’s rights issue in 2008 wasn’t a £12bn cash call, it was a £13bn affair. The extra £1bn is how much Fred Goodwin’s successors have spent settling and fighting claims from irate retail investors who thought the rights issue document was misleading.
The latest settlement with RBS Action Group, worth about £200m, will probably bring an end to the process. One can’t yet say so definitively, because some claimants outside the group haven’t formally accepted, so the judge left the door ajar for a trial. But the diehards have only limited time in which to demonstrate they have the funds to continue, so a revival of proceedings is a long shot. Goodwin and three other former RBS directors can breathe more easily. They probably aren’t going to be called as witnesses.
The current chief executive of RBS, Ross McEwan, will also be relieved. He has made no secret of the fact that he regards the legal claim as a huge distraction from his day job of trying to improve RBS’s fortunes. Fine, but he should try putting himself in the claimants’ shoes. Most are small shareholders, and some are employees of RBS who were encouraged by former management to invest. The bank’s abrasive tone with the claimants, and its seemingly freewheeling approach to racking up legal fees (a cool £100m), have felt completely wrong.
“We have been very clear that putting our legacy issues behind us is a priority,” said RBS as it described the settlement as a positive outcome. It may feel like a legacy issue for McEwan – but it’s a hideous phrase to use when folk less wealthy than him are still living with the financial consequences of the UK’s biggest banking catastrophe.
Santander deal looks better for the regulators than for the buyer
Ana Botín, chair of Santander, will be the toast of Frankfurt and Brussels. A small, but potentially nasty, crisis has been averted by the bank agreeing to buy the “failing or likely to fail” Banco Popular, Spain’s sixth largest lender, for a nominal euro.
For the European Central Bank and the newish Single Resolution Board, it’s a useful demonstration that a redesigned system for dispatching weak banks can do the job. Popular’s shareholders and holders of its riskiest class of bonds get wiped out, which is what’s meant to happen, and a troubled bank ends up in the arms of a stronger owner. Depositors are unaffected, no public money is involved, and everybody can move on.
It would be harder to perform the trick in, say, Italy, where bondholders tend to be retail savers, but never mind, the Spanish example sets a good precedent that holders of lower-class IOUs can lose all their capital when a bank is in distress. Their CoCo, or contingent convertible capital, paper is called loss-absorbing for a reason.
The harder part to understand, however, is why Santander is so willing to play along. It’s true that, on paper, the numbers can be made to add up. Santander is raising €7bn (£61bn) via a rights issue to cover a €7.9bn provision for even more write-offs on Popular’s troubled book of property loans. The prize at the end of the process is commanding market shares in Spain and Portugal, especially in lending to small businesses, and the chance to remove €500m from the combined cost base. The deal is expected to generate a return on investment of 13%-14% in 2020, says Santander.
Will it really, though? A couple of big assumptions are being made. First, that Santander, without time to conduct a full examination, has a proper grasp on the awfulness of Popular’s property loans. Second, that removing €500m of overheads from Popular will mean only a modest loss of customers. Both gambles could come good, especially if the Spanish economy continues to recover. Even so, on day one, this deal looks far better for the regulators than for the buyer.
For Santander shareholders, the critical piece of information is the one they will not get: did Botín jump to buy Popular, or was she pushed by the banking authorities?
WPP is lucky – shareholders are usually far more revolting
At most FTSE 100 companies, a 21% vote against the remuneration report would be a cause of embarrassment. At advertising giant WPP, a one-fifth rebellion counts as a decent result. The shareholders are usually far more revolting.
The chief executive Sir Martin Sorrell’s pay packet fell from £70m in 2015 to “only” £48m last year, but that hardly explains the relative contentment. Rather, the shareholders were ambushed by WPP’s promise in 2013 that the extravagant incentive scheme would be dismantled.
But the new arrangements don’t arrive until next year. During the transition period, Sorrell’s winnings have been enormous, even for a successful public company. He played the long game on pay – and won.
