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Dutch pension firm leads charge to sue RBS for subprime exposure

By Ian Fraser

Published: Sunday Herald

Date: December 19th, 2010

Dutch asset management group Mn Services is preparing to sue the Royal Bank of Scotland for damages after the Edinburgh-based bank failed to disclose its true exposure to subprime toxic loans ahead of its October 2008 implosion.

The €69 billion (£59 billion) asset management group and pensions provider said its investment in RBS shares was all but wiped out after statements from the bank’s then board of directors – led by chairman Sir Tom McKillop and chief executive Sir Fred Goodwin – were taken at face value.

Between June 2007 and January 2009, Mn Services, based in The Hague, was persuaded to purchase RBS preference shares and other RBS securities. But the shares plummeted in value after a series of calamities for RBS including far bigger exposure to subprime than had been disclosed, its October 2007 acquisition of ABN Amro, a £12bn rights issue in April 2008 and the subsequent bail-out by the UK Government.

Ruud Koerts, spokesman for Mn Services, said the lawsuit will be filed in the UK courts after a bid for a class action suit in the United States failed. “The US judge granted the class action to a lead plaintiff who doesn’t represent European interests. As we expected to miss out as a consequence, we have decided to proceed under British law.” Koerts said the case is being prepared by the San Diego-based law firm Coughlin Stoia Geller Rudman and Robbins, which secured a $7bn payout for investors in Enron after the fraudulent Texas-based energy trading firm’s collapse into bankruptcy. Coughlin Stoia is working alongside a UK law firm which he would not identify.

According to Kris Douma, head of responsible investment at Mn Services, at least 20 other institutional investors and pension funds from across Europe will join the court case. He declined to provide further details.

It is thought co-plaintiffs in the class action will include other European pension funds linked to the earlier abortive action against RBS, including the British local authority schemes, Merseyside, North Yorkshire, Strathclyde, Falkirk and Highland.

According to the trade title Investment & Pensions Europe APG, the asset manager for the €231bn Dutch civil service scheme ABP is “closely watching developments”.

In 2006 and 2007, RBS was piling into the market for sub-prime loans through its RBS Greenwich offshoot, just as savvier Wall Street players including Goldman Sachs were running for the hills. In 2007 alone, the Edinburgh-based bank bought $43bn (£30bn) of sub-prime mortgages. Last year the bank’s current board insisted that its then board, including Goodwin, was fully aware of this.

RBS had planned to package up the sub-prime debts into collateralized debt obligations and sell them on to other investors, but after the credit markets seized up in August 2007, RBS was unable to do so. In March 2007, Sir Fred Goodwin told analysts: “The fact that we don’t get involved in sub-prime lending has been another land-mine we have kept away from.”

In a statement the same month Goodwin said: “Central to it [our cautious stance] is our long-standing aversion to sub-prime lending, wherever we do business.”

By the end of 2007, RBS had admitted to sub-prime exposure of £3.5bn and said it was taking a £1.25bn write-down on these assets.

After Goodwin left, the bank revealed the disastrous consequences of its foray into the sub-prime market, when it unveiled losses of £28 billion for the year to December 2008.

Lawyers Coughlin Stoia earlier said: “[In] fact, the company was effectively insolvent as a result of impaired assets, bad loans, and its disastrous partial acquisition of ABN Amro.” Coughlin Stoia was unavailable for comment.

Separately a group of pensioners and retail investors advised by law firm Leon Kaye who were impoverished after RBS’s April 2008 rights issue have pledged to continue with their legal battle, despite the recent exoneration of Goodwin and RBS by the Financial Services Authority.

RBS declined to comment.

View this article on Herald Scotland

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1 Comment for “Dutch pension firm leads charge to sue RBS for subprime exposure”

  1. I was wondering if you ever considered changing the layout of your blog? Its very well written; I love what youve got to say. But maybe you could a little more in the way of content so people could connect with it better.

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