By Ian Fraser
Published: The Herald
Date: June 26, 2012
Disgraced former Royal Bank of Scotland chief Fred Goodwin will tell a court that he did not dupe the bank’s shareholders when he asked them for £12 billion just months before its near-collapse, writes IAN FRASER.
Mr Goodwin and other former directors are facing a £3bn legal action from thousands of investors who lost money in the RBS crisis of October 2008.
The case is being brought by the RBS Shareholders’ Action Group against Mr Goodwin, former chairman Sir Tom McKillop, ex-head of investment banking Johnny Cameron, as well as the Edinburgh-based institution itself.
In a letter leaked to The Herald, Herbert Smith, the law firm acting for Mr Goodwin, Sir Tom and Mr Cameron, denied its clients made any “untrue or misleading statements” in the RBS prospectus for a £12bn rights issue and said that it contained “no critical omissions”.
The 36-page document to lawyers Bird & Bird, representing 12,300 retail investors, including hundreds of middle-ranking former RBS and NatWest workers, and 91 institutions, added they would “vigorously defend” any claims against them.
The group claims the bank and directors gave a false and misleading picture of the bank’s health at the time of the rights issue and is demanding compensation.
In the letter, Mr Goodwin’s lawyers say:“The prospectus did not contain any untrue or misleading statements, and did not contain any critical omissions … Overall a very clear picture was given to investors of the purpose of the rights issue and of the role of the rights issue proceeds as part of the more general capital plan.”
It adds that the April 2008 prospectus for the UK’s largest rights issue, which persuaded investors to pump £12bn of fresh capital into RBS, was completed with the “utmost diligence”.
A rights issue is when a listed firm seeks to improve its capital by inviting shareholders to buy new shares. However, within six months, RBS was bailed out by Gordon Brown’s Labour Government with £20bn of taxpayers’ money.
The letter affirms: “The evidence demonstrates that the prospectus was prepared with the utmost diligence, and those responsible for it reasonably and honestly believed that its content was true and not misleading in the light of the market conditions at the time.”
Mr Goodwin’s lawyers also dismissed any suggestion by the action group that RBS could have foreseen the global banking crisis.
They write: “In effect, your clients’ case rests on the inference that because of the liquidity crisis which affected the financial industry as a whole so badly in late 2008, disclosures made by RBS at the time of the rights issue … must have been incomplete and misleading. But that does not follow at all. It is a classic case of an allegation made with the benefit of hindsight.”
Mr Goodwin’s lawyers rebutted the group’s claims that RBS secretly dipped into the US Federal Reserve for almost $8.4bn during the rights issue.
Describing the allegation as “simply wrong”, the letter adds: “There was no such reliance, and no disclosure was required … In any event the borrowings were on competitive terms and represented business-as-usual funding.”
The letter also disputes another plank of the case, that the rights issue was brought following the intervention of the Financial Services Authority.
In January, the regulator’s chief executive, Hector Sants, told the House of Commons Treasury Committee that he pressed Mr Goodwin for a rights issue in April 2008. “I have no doubt that he would not have had a rights issue of that size without my personal intervention,” he said.
Two months before the rights issue, Mr Goodwin said RBS did not need to raise capital that way, saying: “There are no plans for inorganic capital raising [rights issue] or anything of that sort.”
The letter to the action group’s lawyers adds: “You make the allegation that the rights issue was conducted only as a result of ‘intervention’ by the FSA. That is incorrect. The evidence shows that the initiative for the rights issue was RBS’s, and that it acted as a result of its own assessment of what was required.”
The group was also urged by Mr Goodwin’s lawyers to reflect on the letter and consider fully whether they should consider the expensive legal action.
It adds: “Our clients will vigorously defend any claims by your clients. We invite your clients to review their position, and, having considered the explanation set out in this letter, and having reflected further on the costs for them (both in terms of time and money) which will inevitably be wasted if they press ahead, to confirm that they do not intend to pursue this matter any further.”
A spokesman for the RBOS Shareholders’ Action Group said they are more determined than ever to see RBS and its former directors to court. If Mr Goodwin declines to appear, the spokesman said the group intends to summons him as a witness.
The action group said it would summon Mr Goodwin to the High Court in London, where the case is expected to be heard, if he declines to appear as a witness.
Spokesman Fred Campbell said: “We intend to bring this before the court and we will doggedly pursue it. We are determined to have our day in court and to let the court decide whether we have a valid claim. Every other route has failed us – the FSA, the Bank of England, the Treasury, the Listing Authority [securities regulator]. None had the courage to say stop.””
This article was the page one splash in The Herald on Tuesday June 26th, 2012