It promises to be one of the most sensational trials of recent times. On Monday 22 May, after eight years of expensive and tortuous legal throat-clearing, the RBS Shareholder Action Group will finally get its day in court, with Fred Goodwin, the former RBS chief executive due to be the key defendant.
Proceedings – which relate to whether or not Goodwin and his fellow RBS directors duped shareholders, including thousands of the bank’s own staff, into piling £12.3bn into the bank’s shares as the financial crisis intensified in April to June 2008 – are expected to last for 12 weeks.
Back in spring 2008, Goodwin and his acolytes on the RBS board were making all sorts of positive noises about RBS’s financial position. As they sought to persuade investors to put money into a £12bn capital raising or rights issue, they were reassuring about the purpose of the issue, about the bank’s prospects, and about its ability to successfully integrate ABN Amro, a toxic Dutch bank they had bought the previous year.
Yet having tapped investors for £12.3bn, RBS, which also owned NatWest, Ulster Bank, Coutts & Co, Direct Line, Churchill, Citizens, and large parts of ABN Amro, collapsed four months later. Shares which were purchased at the supposed ‘bargain basement’ price of £2 had plummeted in value to 10 pence and it took a £45.5 billion taxpayer-funded bailout, to stop the bank, then the world’s largest by assets, going down the tubes.
The shape of the legal proceedings has altered considerably over the past few months as RBS, still 72 per cent owned by the British Government, and its lawyers Herbert Smith Freehills have used a variety of means to spare Fred Goodwin’s blushes and avoid the case coming to court.
These have included contacting institutional investors which had agreed to be part of the action and offering an out-of-court settlement of 42p for every share they bought in the rights issue (i.e. 21p in the pound). Many have accepted.
The bank recently admitted it has already paid out £100m in legal fees to defend itself, including over £6.5m to defend Goodwin and three other former directors, and that it envisaged spending a further £25m to see the case through.
To put this into perspective, it’s more than the government spent on the Bloody Sunday Inquiry and nine times more than the money spent on the Chilcot Inquiry into the run-up to the Iraq war.
That prompted former Liberal Democrat minister Sir Vince Cable to say: ”The government should not be allowing RBS to spend taxpayers’ money on defending one of the architects of the credit crunch and financial crisis.”
In one of the pre-trial hearings on 3 May, the judge who is handling the case, Mr Justice Hildyard, took aim at RBS over its escalating legal costs, saying they were ”not proportionate in relation to the value of the case”. He mocked the bank over its ”staggering” costs and its use of 13 barristers and QCs (counsel), demanding to know the bank’s ongoing daily trial rate costs, which he suspected for 3 May alone were £181,000.
However, the 28,000 plus small individual investors who are members of the action group do not seem to be put off by such tactics and are determined to see the case through, presumably out of a belief that they are almost certain to win, that the bank will be humiliated, and that their compensation will be five time greater on a per share basis than those who have settled.
The excitement for me and other critics of the UK’s troubled banking system, is that Goodwin and three other former directors of RBS — former chairman Sir Tom McKillop, former finance director Guy Whittaker and former head of investment banking Johnny Cameron — will finally be forced to explain themselves in front of experienced silks.
Among other things the former bankers will be asked to explain why they mismanaged the bank to the extent investors were left penniless and that a trail of financial destruction was left from which the UK has yet to fully recover.
Top billing of course goes Goodwin, who is due to be cross-examined on 8-9 June (during and immediately after the UK general election, which may limit media coverage), and Whittaker, who is due to be questioned on 13-15 June. Dates for McKillop and Cameron have yet to be set.
Other than a relatively light grilling in front of the Treasury Select Committee in February 2009, it will be the first time these former senior bank directors have been obliged to explain themselves in a public forum.
This article was published by Scottish Business Insider on 4 May 2017
Note: In the end the Royal Bank of Scotland settled out of court, paying an estimated £1 billion to the various investor groups who brought the group action in order to avoid former CEO Fred Goodwin, and his three former co-directors from being obliged to appear in court.