Major Institutional Investors To Sue RBS Over 2008 Rights Issue

Major Institutional Investors To Sue RBS Over 2008 Rights Issue
By Chandres (Own work) [CC BY-SA 3.0], via Wikimedia Commons

Five large institutional investors are planning to file suit against the Royal Bank of Scotland Group plc (NYSE:RBS) (LON:RBS) next week, claiming more than £1 billion over the bank’s 2008 rights issuance. Legal & General, Standard Life, Prudential, Aviva, and Universities Superannuation Scheme have appointed law firm Quinn Emmanuel to represent them in the case, reports Steve Slater and Chris Vellacott for Reuters, taking the total claims against RBS over the rights issue to more than £4 billion.

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Acquisition of ABN Amro made RBS vulnerable when the crisis hit

Royal Bank of Scotland Group plc (NYSE:RBS) (LON:RBS) acquired the troubled Dutch bank ABN Amro in 2007 shortly before the financial crisis hit, in a move that critics say left it overly exposed and with a weak capital structure. In 2008, it held a £12 billion rights issuance that was supposed to shore up the bank, but in the end didn’t save it from nearly collapsing and needing to be saved by the British government, which still owns 81% of the bank. RBS has recovered more slowly than many of its UK banking peers, but it is on track to re-privatize now that the British Treasury has decided to retire the Dividend Access Share (DAS) policy that had been one of the terms of the bailout.

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RBS core capital ratio had fallen below 4%

Lawsuits against Royal Bank of Scotland Group plc (NYSE:RBS) (LON:RBS) allege that the prospectus for the rights issuance made misleading statements about the risks that investors were facing. Specifically, they claim that the bank should have told potential investors that the bank’s core capital ratio was well under 4%. RBS has said that its weak capital structure was “clear to the market,” even though the most recent figure published ahead of the issuance was 4.5%. Some of the lawsuits also name former CEO Fred Goodwin, former chairman Tom McKillop, and other former executives as defendants.

“While RBS and its former directors made some business decisions that have been criticized, this does not mean that they misled investors or acted illegally,” Royal Bank of Scotland Group plc (NYSE:RBS) (LON:RBS) said in a statement. “We believe we have strong defenses to the claims that are being brought against the group and that is why we intend to defend these vigorously and to protect the interests of our shareholders including UK taxpayers.”

Regardless of whether the claims are strong or weak, there’s no reason why L&G, Prudential and others shouldn’t try to recover some of the money lost in the deal, though the case is unlikely to be resolved anytime soon.

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Michael has a Bachelor's Degree in mathematics and physics from Boston University and Master's Degree in physics from University of California, San Diego. He has worked as an editor and writer for several magazines. Prior to his career in journalism, Michael Worked in the Peace Corps teaching math and science in South Africa.
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