RBS investors urged to settle case with bailed-out bank

Action group has told members it has accepted 82p share offer, presented hours before high court case was due to begin

Thousands of private investors who claim they were misled by Royal Bank of Scotland and its former chief executive Fred Goodwin into investing in the bank before it was rescued by the taxpayer are being urged to settle their legal case.

An action group representing investors involved in the long-running legal battle has told its members it has decided to accept the 82p-a-share offer, which RBS presented to them just hours before the case was due to begin last Monday.

The case has been adjourned until 7 June to allow the shareholders to consider the £200m settlement from RBS. If the deal is accepted, Goodwin and other former directors of the bank would no longer be required to give evidence in the high court.

A letter sent to members of the RBS Shareholder Action Group on Saturday states: “Having carefully considered the merits of the current offer ... we have decided to accept the offer of 82p per share on behalf of our membership. This is a decision which is fully supported by our legal advisers.

“We understand that accepting an offer of slightly below the previously advised range of damages, being 92p per share and 234p per share, may be surprising to some claimants. However, there are a number of practical and legal risks which had to be considered.”

The letter goes on to say that while “the merits of the case against the bank remain strong, the merits against the individual director defendants has always been more mixed”.

It also adds that, even if shareholders won the case, RBS would be likely to appeal against the claim as it relates to “a previously untested piece of legislation”, while another trial to assess the level of damages would also need to take place.

The claimants allege they were misled into buying the bank’s shares in a £12bn cash call in April 2008 – six months before it was bailed out – and are bringing their action against the bank, Goodwin and three other former directors.

It is understood the group needs the approval of 70% of the claimants to accept the deal. An action group source said institutional shareholders involved in the claim would accept, while the majority of retail investors being represented by share trading platforms had also indicated they would take 82p a share. Each of the two groups is thought to account for about 40% of the claimants.

It is not known which way the remaining 20% of independent shareholders will vote, or if their views will be significant to the result.

Some of those investors have previously been described as “diehards” as they do not want a deal, because they want to hold former senior managers to account.

The letter to claimants also confirms that Trevor Hemmings, who owns Preston North End football club and has been providing funding for the claim, has decided to accept the deal and was no longer prepared to provide funding – meaning any shareholders wanting to continue would need to find a new financial backer.

The action group’s letter adds: “The claim is presently being funded by a substantial claimant in the action. That claimant has decided to accept the offer and they are no longer willing to fund the action. That means that there is currently no available funding to fund the legal and other costs to take the matter to trial.”

While the court is not currently sitting, Mr Justice Hildyard wants an update this week and asked to be told on Thursday if a settlement has been reached before they reappear in court on 7 June.

At that hearing, any shareholders wanting to continue will have to state to the court that they have the funding to carry on – a position that some involved with the case view as extremely difficult to finalise in the timeframe.

The action group’s letter adds: “All of the [institutional investors] have now indicated that they will accept the 82p offer ... As a result, the economic platform of costs sharing will be destabilised, meaning a smaller number of claimants sharing the costs burden, and also increasing the potential liability for adverse costs which would be divided amongst fewer continuing claimants.

“In these circumstances, the viability of the case continuing to trial is now significantly in doubt.”

RBS has been facing a number of legal claims in relation to the April cash call.

In December, the bank started to settle claims which had once amounted to £4bn by announcing it had £800m to share among the various factions bringing claims. RBS has settled with 87% of them without admitting liability but to “minimise material litigation expense and management distraction”.

The previous settlements have been about 42p a share.


Jill Treanor and Simon Goodley

The GuardianTramp

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