The discredited former chief executive of The Royal Bank of Scotland Fred Goodwin is set to have his say in the High Court in London. He will be one of several key witnesses in a case brought by The RBS Shareholders Action Group.
It claims that a rights issue prospectus in June 2008 contained misleading statements and is seeking around £1.2bn in compensation.
Another witness will be Tom McKillop, chairman alongside Goodwin, but who, unlike Goodwin, seems to have retained his knighthood.
He is scheduled to be followed by Johnny Cameron, the former head of RBS's investment bank. Also set to be questioned is Guy Whittaker, former finance director.
Legal costs exceed £100m for defendants
Legal costs for the defendants alone already exceed £100m, noted The Hon Mr Justice Hildyard in a judgment issued in respect of a hearing on 23 February. Signature Group LLP is acting for the RBS Shareholders Action Group.
Herbert Smith Freehills is representing the defendants.
An RBS press officer says that four other groups representing shareholders have already settled out of court. The bank has agreed to pay them around £700m, representing around 87% by value of the total set aside by the bank.
But this is not an admission of liability, the press officer stresses.
Action Group explains the case
- The members of the RBS Shareholders Action Group Limited have brought a claim for circa £1.2bn, including interest and costs
- This is for breaches of section 90 of the Financial Services and Markets Act 2000 by Royal Bank of Scotland Group Plc and four of its directors
- The claim is in respect of the contents of a rights issue Prospectus dated 30 April 2008
The members of the Action Group comprise a substantial number of both institutional and individual investors who subscribed to the RBS rights issue promoted in the prospectus in 2008. Their claims are being organised and advanced by the Action Group.
It is currently pursuing legal action on behalf of more than 27,000 investors who lost money by subscribing for shares during that rights issue.
- We believe the directors of the bank acted improperly by misrepresenting the underlying strength of the bank at the time and by omitting critical information from the prospectus
- This led to tens of thousands of shareholders taking part at an over-inflated price
- We are the only group suing RBS that represents individuals, including bank branch staff and pensioners, as well as the large institutions
- These are people who could ill afford to be misled over investments that were supposed to keep their families financially secure
True purpose not disclosed
The true purpose of the rights issue was not disclosed, the action group contends. Whereas it was inferred as an attempt to improve ratios, the bank was actually strongly advised by the then Financial Services Authority to shore up a balance sheet which was critically damaged by the ABN AMRO acquisition.
The chairman speaks
In his chairman's speech to the RBS annual general meeting two weeks ago Sir Howard Davies (pictured below) said:
“We have reached settlement with shareholders representing around 87% by value of the total claim in the 2008 rights issue shareholder litigation.
The settlement does not constitute any admission of liability by the bank, but allows us to minimise material litigation expense and management distraction. If we do not reach settlement with the remaining claimants, we will defend ourselves vigorously when the trial starts on 22 May.
“The bank has been criticised for the cost of defending itself and paying the legal costs of defending our former directors, who have been named as co-defendants in the action. The costs we are having to meet are high because of the extraordinary breadth and complexity of the case.
And it is normal practice under company law, and indeed it is a legal obligation for the bank, that directors should be indemnified in relation to any third party civil legal action arising from their tenure at the bank.”
From the Action Group charge sheet
- RBS portrayed the ABN AMRO acquisition as going well in the prospectus, whereas in reality it was not
- RBS did not disclose its capital ratios, something it was obliged to do
- RBS failed to make adequate goodwill impairment writedowns in relation to ABN AMRO in circumstances where the goodwill had not been tested for impairment, despite severe market instability
- Risk management and control systems at RBoS were fundamentally flawed, something not represented in the prospectus
- RBS failed to disclose its reliance on US$11,904m in loans provided by the US Federal Reserve
- We will make sure our members get the compensation to which they are entitled
- We are the only group that is suing Fred Goodwin and other directors as well as RBS
- Our thousands of members want Goodwin, McKillop, Cameron, and Whitaker to be held to account for the misrepresentation that caused so many people to lose so much money at a time when the greatest financial crisis since the 1930s was about to reach its depths
- Goodwin is still receiving an annual pension of £342,500, while our retirees await their compensation
The trial began today, 22 May 2017, in Court 15 of the Rolls Building, Fetter Lane, London EC4A 1NL.