THOUSANDS of small investors were last night given hope they would be granted their day in court after a £2.4 billion legal claim was set to be launched against former Royal Bank of Scotland directors

THOUSANDS of small investors were last night given hope they would be granted their day in court after a £2.4 billion legal claim was set to be launched against former Royal Bank of Scotland directors, including Fred Goodwin.

 

The angry shareholders, who lost money in RBS’s controversial £12bn cash call in 2008, are seeking billions in compensation from the failed bank.

Bird & Bird, the RBoS Shareholders Action Group’s London-based legal firm, confirmed Mr Goodwin, the former RBS chief executive, would receive a so-called “letter of claim”, along with what a legal source said would be “a handful” of other former directors and the taxpayer-owned bank itself.

It is believed other former RBS top brass to be included will be chairman Sir Tom McKillop, finance director Guy Whittaker and investment banking head Johnny Cameron.

RBoS Shareholders Action Group is backed by 7,400 private shareholders and a large string of big institutional investors, believed to include Collins Stewart, Deutsche Bank, SG Hambro, Credit Agricole, HSBC Global Custody and State Street Securities.

The legal move was welcomed as a breakthrough by another activist group seeking redress from the bank and former directors, the RBS Action Group.

The latter represents about 8,400 small shareholders, but crucially does not have the financial muscle of the big institutions backing its sister action group.

The groups claim RBS withheld vital financial information or gave misleading guidance ahead of the stock market rights issue, where shareholders were encouraged to invest in the bank. It came only two months after Mr Goodwin had denied there were any plans or need for a fundraising.

In the autumn of 2007 RBS had spent £10bn as its part of the £47bn paid by a consortium for the acquisition of the Dutch bank ABN Amro at the height of the banking credit crisis.

Within months of the stock market rights issue, however, the bank had tumbled into public ownership via a £45bn taxpayer bailout that left the state owning 83 per cent of the bank and many shareholders wiped out.

Michael Lamoureux, one of the founders of RBS Action Group, said: “Our problem in getting the matter to court is that big organisations like RBS can say to the court that the suit should be thrown out because we would not have the money to cover the costs if we lose.

“We did not have that and so have continued to discuss the matter with our legal experts. But RBoS Shareholders Action Group have some large institutional shareholders behind it. That, in a way, could do us a favour.

“I don’t care which group gets RBS into court because then the bank will be forced to disclose masses of documentation.”

Mr Lamoureux said that could lead to a general settlement down the line in investors’ favour “because RBS will not want to settle with just one group”.

He added that when RBS Action Group sent in its own letter of claim to the bank two years ago the bank claimed the group was “being wise with hindsight, nothing was known [about RBS’s financial vulnerability] at the time”.

Mr Lamoureux says he estimates he and his wife lost more than £100,000 through a mixture of the rights issue and the subsequent collapse in the bank’s share price.

He said many small private shareholders who had lost many thousands of pounds through the calamitous fall in RBS’s share price “remain furious”.

“RBS were reckless. There were lots of banks around the world at that time that could be criticised for their behaviour, in the likes of sub-prime etc.

“But RBS was the worst of them. They agreed to buy ABN Amro as credit markets were seizing up. And at the time RBS was deceiving people about its financial position, it was not going to stand up.”

In its report into the bank’s collapse before Christmas, the Financial Services Authority severely criticised RBS’s decision-making and culture, but concluded there were no “materially important deficiencies” in the group’s investment circulars relating to the rights issue.

The rights issue was launched when shares were valued at 200p. This is in sharp contrast to RBS’s current share value, which closed last night at 25.37p, meaning the taxpayer is still nursing losses of about £23bn.

In the face of the “imminent” delivery of the letter of claim, RBS issued a statement saying that it believed it “has substantial and credible legal and factual defences to the remaining and prospective claims, and will defend itself vigorously”.

RBS declined to comment on a report that RBoS Shareholders Action Group will claim that the bank failed to disclose to shareholders and the market that it was reliant on $11.9bn in cheap loans provided by the US Federal Reserve at the time of the mega cash call on shareholders.

The rights issue was supported at the time by 95 per cent of investors. The City largely took the latest pressure on the bank in its stride, saying any overhang on the share price was only like to be “marginal”.

Ian Gordon, banking analyst at broker Investec, said: “It will have an impact. It’s not new news, we have known it was coming for a few years.”