RBS settles rights issue lawsuits at cost of £800m

By Steve Slater

LONDON, Dec (Shanghai: 600875.SS - news) 5 (IFR) - Royal Bank of Scotland (LSE: RBS.L - news) has settled legal claims with the majority of shareholders who alleged they were misled in the state-backed bank's £12bn rights issue in 2008, and had already set aside £800m to cover the cost.

RBS said on Monday it had reached a full and final settlement with three of the five groups of investors who were pursuing lawsuits against it over the fundraising.

It is now trying to reach an agreement with the other two groups in order to avoid the case coming to trial in March 2017.

A lawsuit could see former bosses including Fred Goodwin and Tom McKillop called to testify.

Investors claimed in the lawsuits they were misled about RBS's financial strength when they participated in a £12bn rights issue in April 2008. Six months later RBS had to be rescued in a £45.5bn state bailout.

It is one of many past problems RBS is trying to put behind it that is hampering its recovery. The bank is still 73%-owned by UK taxpayers and the government is currently sitting on a £25bn loss on the stake.

RBS had frequently said it had no intention of settling the rights issue lawsuit and would defend itself in court if necessary, but on Monday said the settlement would "minimise further material litigation expense and management distraction".

The bank said it had not admitted any liability.

£4BN CLAIM

RBS said the three groups it had reached agreement with represented 77% of the claims by value in the litigation. It said the £800m was to settle all claims.

Investors had been claiming more than £4bn from RBS in the lawsuits.

The three groups to agree a deal were represented by law firms Quinn Emanuel, Stuarts Law and Mishcon de Reya. They included some of the biggest institutional shareholders, such as Standard Life (LSE: SL.L - news) , Legal & General (LSE: LGEN.L - news) , Aviva (Other OTC: AIVAF - news) , Scottish Widows and M&G (Shanghai: 603899.SS - news) .

Investors paid 200p per share in the rights issue, and will get about 41p per share from the settlement.

RBS shares rose 1.3% by midday to trade at 196p. But the bank had a 10-for-one share consolidation in 2012, so 100 shares bought in the rights issue equates to 10 new shares, meaning 90% of their value has been lost.

One of the two remaining litigation groups is the RBoS Shareholder Action Group, which is represented by Signature Litigation and says it is claiming £1.25bn on behalf of 27,000 investors.

The other outstanding group is the RBS Rights Issue Action Group, represented by law firm Leon Kaye.

Those two groups will face higher costs without the other groups, however, which reduces the likelihood it will go to court.

RBS said it has spent about £100m defending itself so far, and a full High Court case could last five years or more.

RBS's defence document, filed with London's High Court in December 2013, said it and its former bosses may have made bad business decisions but that did not mean they misled investors or acted illegally.

The defence document claimed "it was clear to the market" the bank's core Tier 1 capital ratio, a key measure of financial strength, was "significantly below 4%" at the time of the rights issue in 2008, even though it did not publish a figure. (Reporting by Steve Slater; Editing by Ian Edmondson)