RBS Shareholders Say They May Settle to Avert Goodwin Trial

  • Bank had doubled offer to investors before trial, person says
  • Lawyer Nash sees ‘good prospect’ of a deal being reached

Investors suing Royal Bank of Scotland Group Plc over its 2008 rights issue may agree to settle the dispute as soon as this afternoon, allowing former Chief Executive Officer Fred Goodwin to avoid a court appearance.

“The majority of claimants have indicated a willingness to accept the latest offer,” Jonathan Nash, a lawyer for the investors, told a London court on Tuesday morning. There is a “good prospect that within the course of the day the remainder of claimants will” reach an agreement with the bank, he added.

RBS doubled its offer to investors as CEO Ross McEwan staged an 11th-hour personal intervention over the weekend, a person with knowledge of the matter has said. The trial was due to start Monday before a judge agreed to postpone the start until Wednesday while the claimants weigh the improved proposal.

RBS increased its offer to 82 pence per share, up from earlier settlements of 41.2 pence and 43.2 pence with other claimants in the class action suit, the person familiar with the matter said. Taking the case to trial could force the state-owned bank to relive an ugly period during the 2008 financial crisis, when ex-CEO Goodwin held a 12 billion-pound ($15.6 billion) emergency rights offering only for the bank to be rescued months later in a record government bailout. 

‘Extraordinary’ Costs

While a settlement may be imminent, Judge Robert Hildyard criticized RBS for its "extraordinary" spending on lawyers. Under the U.K. court system, where the loser pays both sides’ legal costs, high fees can quickly become a insurmountable burden for small investors or businesses that seek access to justice.

RBS’s team of 13 trial lawyers, known as barristers, "serried ranks" of more than 20 attorneys who don’t argue in court and paralegals, had caused the lender’s legal fees to balloon to nearly 129 million pounds, Hildyard said.

That "may be shown in the end to be disproportionate expenditure," Hildyard said in the ruling.

Goodwin is scheduled to give witness testimony next month, in what would mark a rare appearance for the Scottish banker who’s become something of a cartoon villain for many of the U.K. investors who sued.

The claimants argue in their lawsuit that the bank deliberately concealed its financial weaknesses before the rights issue. The bank counters that no cover-up took place, the rights issue prospectus included all the information investors needed, and the claimants are overlooking how volatile markets were in 2008.

Filed in March 2013, the suit swelled to over 27,000 claimants seeking as much as 4 billion pounds, but the bank set aside 800 million pounds to settle with as many investors as possible in a bid to put some distance between current management and decisions that were made a decade ago. Although the majority of investors agreed to settle at the end of last year, one group is holding out, seeking about 520 million pounds at trial.

Read more about the RBS rights issue litigation here

Last-minute settlements are common before high-profile trials as seek ways to avoid the cost of going to a full trial which could result in weeks of difficult publicity for those involved. Earlier this month, Societe Generale SA agreed to pay 963 million euros ($1.1 billion) to resolve its dispute with the Libyan Investment Authority two days after the trial was scheduled to start.

— With assistance by Jef Feeley

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