Royal Bank of Scotland is racing to avert a high-profile court case by offering £200m in compensation to thousands of investors who claim they were misled into buying the bank’s shares in the run-up to its taxpayer bailout.
Round-the-clock discussions are under way to reach a deal that would prevent the case being heard in London’s high court and release Fred Goodwin, thecontroversial former RBS boss, from having to give evidence next month.
The case had been due to begin on Monday but was adjourned for 24 hours after an 11th-hour intervention by RBS to try to reach a settlement with 9,000 private investors and a handful of major institutions over their claim that they were misled during a £12bn cash call in April 2008.
The bailed-out bank offered to double the amount of compensation being offered to shareholders who lost out when they backed the rights issue, which took place six months before the £45bn taxpayer bailout.
The court convened briefly to hear Jonathan Nash, QC for the shareholders, tell the judge that both sides were involved in settlement discussions. They were hopeful of making progress, Nash said.
The judge, Mr Justice Hildyard, agreed to an adjournment until 10.30am on Tuesday to give both sides time to try to thrash out an agreement.
Ross McEwan, the bank’s chief executive, is personally involved in the discussions to bring an end to the long-running high court action that is scheduled to run until the middle of October and rake over the circumstances that led to the bank’s bailout.
The bank is thought to have made an offer worth about £200m, based on 82p a share, although Reuters was reporting that investors were holding out for 100p a share. The investors’ claim reaches £800m if interest is included on top of the £520m of losses – although the offer from RBS is double that agreed with other investors who have already settled.
The investors are accusing the bank, Goodwin and three of his former boardroom colleagues of misleading them in the prospectus which was issued at the time of the April 2008 fund raising. There are about 9,000 private investors and a handful of major City institutions and local authority pension funds involved in the legal case, so corralling them to take a unanimous view on any settlement is likely to be complicated.
Under the timetable set out by the court before Monday’a adjournment, Goodwin, who was in charge of RBS at the time of the rights issue, is scheduled to appear in court for two days starting on 8 June – the day of the general election.
Goodwin has kept a low profile since leaving the bank at the time of the bailout. He has not publicly discussed his role at RBS since he gave evidence to MPs in February 2009 and offered a “profound and unqualified apology for all of the distress that has been caused”. At that hearing eight years ago, the Scotsman also made clear he thought it was too simple to blame him for the bank’s collapse, which came a year after the record-breaking tak over of Dutch bank ABN Amro.
Goodwin was stripped of his knighthood in 2012 – barely 10 years after being named Forbes business man of the year after the takeover of NatWest.
The bank has been embroiled in legal cases relating to the £12bn cash call for some time. Five shareholder groups had originally brought claims but in December, RBS announced it had £800m to share among the various factions. It has settled with 87% of the investors and, with the last group being offered about £200m, the bill for RBS would rise by about £100m.
None of the settlements – which so far have been for about 42p a share – has required RBS to take liability. Sir Howard Davies, chair of RBS, told the bank’s annual meeting this month: “The settlement does not constitute any admission of liability by the bank, but allows us to minimise material litigation expense and management distraction.”
The bank’s legal fees are expected to reach £125m if the case goes ahead, including the costs of defending Goodwin and the other defendants. The businessman Trevor Hemmings, who owns Preston North End football club, a chain of pubs and a stable of racehorses, is helping to cover the legal costs of the shareholders. He has admitted to losing significant sums on RBS shares.
