RBS court case: last chance for Fred Goodwin to be put in the dock almost gone

RBS, the state-owned bank which had to be rescued by the UK taxpayer with a £45.2bn injection of capital at the height of the financial crisis, looks to be close to settling the final leg of the court cases related to claims it misled investors in Britain’s largest ever rights issue. RBS took £12bn from investors in 2007 to bolster its position, but in October 2008 ran out of money and came within hours of going bust.

In a long-running case, five shareholder action groups had originally been seeking compensation that could have amounted to as much as £4bn. Three of the five groups settled in early December, with a fourth closer to Christmas. A settlement of £600m is being paid, with a further £200m set aside by RBS to account for the final group if it agrees to settle.

The fifth group (SG) had vowed to push ahead at the instigation of small shareholders, but in documents submitted at the High Court on Tuesday several of the key components of the claim were abandoned. Claims relating to capital markets and poor risk management have been dropped. RBS’s legal team have also sought assurances about SG’s ability to fund legal costs and continue with the case.

The planned trial has been pushed back to May later this year, and reduced to twelve weeks with only 18 days of evidence from witnesses.

Former chief executive Fred Goodwin, and three other former directors of RBS, are scheduled to give evidence. All their legal costs are covered by RBS. But if the final claim is settled there will be no court appearance by Goodwin in relation to the biggest corporate collapse in British history.

The documents submitted at the High Court state:

“The Claimants have removed the allegations concerning alleged deficiencies in the Prospectus regarding credit market exposures (section D of the Amended Consolidated Particulars of Claim), VaR (section G), asset sales (section H), operating profits (section I), the acquisition and performance of ABN AMRO (section J), and risk management (section K). In addition, a number of allegations regarding capital (section B) have also been deleted. In other words, the only allegations with which the Claimants are persisting concern liquidity (section C) and some of the complaints regarding capital.”

Some of the most damaging allegations rested on RBS’s handling of CDOs (Collateralised Debt Obligations) produced out of Greenwich in the US in 2006 and 2007. In the US, regulators are still pursuing RBS and multi-billion dollar fines are anticipated over the selling of CDOs, bundles of sub-prime mortgages and related material repackaged and sold on to investors. It was common in the financial industry and a major source of the instability that led to the crisis.

Two settlements with US agencies are expected, with the first amounting to between £2.4bn, and £3.2bn announced as early as this week, according to Mark Kleinman of Sky News. A Department of Justice settlement could cost as much as as $12bn or £9.5bn.

But in the UK it looks as though RBS, which had once been facing a bill for settling court cases potentially as large as £4bn, will now be able to conclude litigation for far less than that. A rare piece of good news for the taxpayer.