Simon Watkins, Financial Mail on Sunday
Royal Bank of Scotland is set to pay out hundreds of millions of pounds to settle legal claims dating back to the financial crisis.
The bank is expected to announce within days that it has reached a settlement out of court with City institutions that bought shares in RBS just months before it collapsed.
The claims against RBS – which is still majority owned by the taxpayer – date back to 2008 when it raised £12 billion issuing new shares to investors.
Paying out: The bank is expected to announce within days that it has reached a settlement out of court with City institutions
Following the banking crisis – which saw RBS shares collapse in value and taxpayers inject £45 billion to stabilise the bank – many investors claimed the prospectus for the fund-raising had failed to include material information about the state of RBS’s finances, including its exposure to ‘toxic’ sub-prime investments, and so misled investors into overpaying for the shares.
Claims against RBS brought by various investors total £4 billion. The settlements, under which RBS is not expected to admit any liability, are likely to amount to hundreds of millions of pounds and RBS has set aside about £800 million to cover risks posed by the legal cases. RBS declined to comment on whether a deal was imminent but said: ‘We have always been clear that the bank is open to exploring an out of court settlement, consistent with our legal obligations.’
A director of one institution involved in the claims said he expected a settlement ‘within a few days,’ though others cautioned that finalising details could yet delay a announcement.
Investment groups expected to settle with RBS this week include Legal & General, M&G Investments, Aviva, Standard Life Investments and Scottish Widows – owned by Lloyds Banking Group.
Details of the payouts are unknown but one source close to Scottish Widows said it expected its settlement to amount to up to £50 million. The sums will benefit policyholders at Scottish Widows and other institutions whose investments included the RBS emergency fundraising. The RBS Shareholder
Action Group, which represents a number of other City firms but also 27,000 private investors who bought shares in the same fundraising, is not part of the settlements expected this week.
That group’s claim differs in that as well as suing RBS, it has named former directors including ex-chief executive Fred Goodwin. Its claim is due to come to trial next March and expected to last at least six months. The group declined to comment.
The looming settlement comes after a turbulent week for RBS.The bank has announced it is closing 86 branches as many customers abandon branch banking for the internet and smartphone apps.
Customers at nine RBS sites in Scotland and 77 NatWest branches in England and Wales were told on Thursday of the closure plans, which include nine branches designated as ‘last in town’ leaving those communities without a local bank.
RBS highlighted that all of those closing branches were within a few hundred yards of a Post Office branch where banking services are available.
Les Matheson, chief executive of retail banking at RBS, said the closures are an inevitable result of the digital revolution as transactions in branches had fallen by 45 per cent in the past five years, while mobile banking had soared with 4.5 million RBS customers now using an app.
Earlier last week RBS emerged as the one bank to fail stress tests designed by the Bank of England to establish whether UK banks have enough capital to weather a new financial and economic crisis.
The test imagined a fresh global crisis, but added in a severe slowdown in China, making it the toughest test yet applied to UK banks.
RBS has submitted a plan to the Bank of England to bolster its capital buffers by raising a further £2 billion.
The test has also raised further doubts over how quickly the Government, which still owns about 80 per cent of RBS bought during the financial crisis, will be able to sell off its stake.