The RBS court case has been adjourned. The Royal Bank of Scotland bailout by the UK government has prevented its collapse. Investors are claiming that they were misled about the financial situation of the bank when they were asked to invest to help purchase the rival Dutch bank, AMV Avro, in 2007.
This deal took place right at the height of last decade’s financial crisis. The RBS required an extra £12 billion in investment to clinch the deal. Investors claim they were misled when offered extra shares at a discount price if they helped fund the deal.
With the Royal Bank of Scotland’s crash, and subsequent £45 billion bailout, investors lost out. The RBS is currently still 72% owned by UK taxpayers. 2016 losses were reported in February as being £7 billion. In April, the government offered to sell its stake at a loss if a suitable offer was forthcoming.
While most claims against the bank have been settled, the current RBS court case relates to the 18 institutions and 9.000 individual investors that have yet to be satisfied. Their claim is that they were misled. They claim that the bank’s financial state had been knowingly overstated. Their combined claim against the RBS and four named directors is for £520 million – which may reach around £700 with interest added.
Chartered accountant Sir Fred Goodwin, as he was known at the time, was CEO of the RBS. He is included in the four that are named in the lawsuit and he is set to be cross-examined on 14th June. He was stripped of his knighthood because of this issue. The bank and named individuals deny any wrongdoing.
The adjournment was agreed by both sides. That is because the RBS and claimants have entered into discussions on how to settle the matter. A case that had been estimated as lasting 14 weeks would take a huge whack of the cash available. In a bid to make a quick settlement, the RBS has offered 82p per share. This is almost twice the previous offer.
The U.S. Department of Justice also has a multi-billion pound claim on the Royal Bank of Scotland. This relates to a toxic residential mortgage-backed bond mis-selling scandal back in 2008. Bonds became useless when large numbers of borrowers defaulted, particularly in the USA. This type of activity was largely responsible for the financial crash around that time.
Because of early settlement discussions, the RBS court case will now start at 1030 Tuesday. The Royal Bank of Scotland bailout did not signify the end of the RBS problems – or those of Fred Goodwin. It was simply the start!
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